1

4310-MR-P

DEPARTMENT OF THE INTERIOR

Bureau of Safety and Environmental Enforcement

30 CFR Parts 250 and 290

Bureau of Ocean Energy Management

30 CFR Parts 550 and 556

[Docket ID: BOEM–2018–0033]

RIN 1082–AA02

Risk Management, Financial Assurance and Loss Prevention

AGENCY: Bureau of Ocean Energy Management (BOEM), Bureau of Safety and

Environmental Enforcement (BSEE), Interior.

ACTION: Notice of proposed rulemaking and request for comment.

SUMMARY: The Department of the Interior (the Department), acting through BOEM and

BSEE, proposes to streamline its evaluation criteria for determining whether oil, gas and sulfur

lessees, right-of-use and easement (RUE) grant holders, and pipeline right-of-way grant holders

may be required to provide bonds or other security above the prescribed amounts for base bonds

to ensure compliance with their Outer Continental Shelf (OCS) obligations. BOEM’s portion of

the proposed rule would also remove restrictive provisions for third-party guarantees and

decommissioning accounts, and would add new criteria under which additional bonds and third-

party guarantees may be cancelled. Based on the proposed framework, BOEM estimates its

amount of financial assurance would decrease from $3.3 billion to $3.1 billion, although it would

provide greater protection as the financial assurance would be focused on the riskiest properties.

BSEE’s portion of this proposed rule would establish the order in which BSEE could order

predecessor lessees, owners of operating rights, or grant holders, who have accrued

2

decommissioning obligations, to perform those obligations when the current owners of a lease or

grant fail to do so. BSEE’s proposed provisions would also clarify decommissioning

responsibilities for RUE grant holders and require that any party appealing any final

decommissioning order provide a surety bond to ensure that funding for decommissioning is

available if the order is affirmed on appeal and the liable party subsequently defaults.

DATES: Submit comments on the substance of this rulemaking on or before [INSERT DATE

60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER]. BOEM and BSEE may

not consider comments received after this date. You may submit comments to the Office of

Management and Budget (OMB) on the information collection (IC) burden in this rulemaking on

or before [INSERT DATE 30 DAYS AFTER PUBLICATION IN THE FEDERAL

REGISTER]. This does not affect the deadline for the public to comment to BOEM and BSEE

on the proposed regulations.

ADDRESSES: You may submit comments on the rulemaking by any of the following methods.

Please reference ‘‘Risk Management, Financial Assurance and Loss Prevention, RIN 1082–

AA02.” Please include your name, return address, and phone number or email address, so we

can contact you if we have questions regarding your submission.

• Federal rulemaking portal: http://www.regulations.gov. In the entry entitled, “Enter Keyword

or ID,” enter BOEM-2018-0033 then click search. Follow the instructions to submit public

comments and view supporting and related materials available for this rulemaking. BOEM and

BSEE may post all submitted comments.

• Mail or delivery service: Send comments on the BOEM portions of the proposed rule to the

Department of the Interior, Bureau of Ocean Energy Management, Office of Policy, Regulation

and Analysis, Attention: Peter Meffert, 1849 C Street NW, Mailstop DM5238, Washington, DC

3

20240. Send comments on the BSEE portions of the proposed rule to Department of the Interior,

BSEE, Office of Offshore Regulatory Programs (OORP), Regulations and Standards Branch,

Attention – Kelly Odom, 45600 Woodland Rd, (Mail code VAE-ORP), Sterling, VA 20166.

• Send comments on the IC in this proposed rule to: Interior Desk Officer, Office of

Management and Budget; 202–395–5806 (fax); or via the

www.reginfo.gov/public/do/PRAMain. Find the information collection by selecting “Currently

under 30-day Review – Open for Public Comments or by using the search function. Please also

send a copy of comments on the BOEM IC to BOEM, Office of Policy, Regulation and Analysis,

Attention: Anna Atkinson, 45600 Woodland Road, Sterling, VA 20166. Please send a copy of

any comments on the BSEE IC to BSEE, OORP, Regulations and Standards Branch, Attention:

Nicole Mason, 45600 Woodland Road, (Mail code VAE-ORP), Sterling, VA 20166.

Public Availability of Comments: Before including your name, return address, phone number,

email address, or other personally identifiable information in your comment, you should be

aware that your entire comment—including your personally identifiable information—may be

made publicly available at any time. In order for BOEM or BSEE to withhold from disclosure

your personally identifiable information, you must identify any information contained in the

submittal of your comments that, if released, would constitute a clearly unwarranted invasion of

your personal privacy. You must also briefly describe any possible harmful consequences of the

disclosure of information, such as embarrassment, injury, or other harm. While you can ask us in

your comment to withhold your personally identifiable information from public review, we

cannot guarantee that we will be able to do so.

FOR FURTHER INFORMATION CONTACT: For questions on any BOEM issues, contact

Deanna Meyer-Pietruszka, Chief, Office of Policy, Regulation and Analysis, Bureau of Ocean

4

Energy Management (BOEM), at deanna.meyer-pietruszka@boem.gov or at (202) 208-6352.

For questions on any BSEE issues, contact Amy White, Bureau of Safety and Environmental

Enforcement (BSEE), at amy.white@bsee.gov or at (703) 787-1665.

To see a copy of either IC request submitted to OMB, go to http://www.reginfo.gov (select

Information Collection Review, Currently Under Review). You may obtain a copy of the

supporting statement for BOEM’s new collection of information by contacting BOEM, Office of

Policy, Regulation and Analysis, Attention: Anna Atkinson, at 45600 Woodland Road, Sterling,

VA 20166. You may obtain a copy of the supporting statement for BSEE’s new collection of

information by contacting BSEE, OORP, Regulations and Standards Branch, Attention: Nicole

Mason , 45600 Woodland Road, (Mail code VAE-ORP), Sterling, VA 20166.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background of BOEM Regulations A. BOEM Statutory and Regulatory Authority and Responsibilities B. History of Bonding Regulations and Guidance C. Regulatory Reform - New Executive and Secretary’s Orders D. Purpose of BOEM’s Portion of the Proposed Rulemaking

II. Background of BSEE Regulations A. BSEE Statutory and Regulatory Authority and Responsibilities B. BSEE’s Decommissioning Regulations and Guidance C. Regulatory Reform D. Stakeholder Engagement E. Purpose of BSEE’s Portion of the Proposed Rulemaking

III. Proposed Revisions to BOEM Bond and Other Security Requirements A. Leases B. Right-of-Use and Easement Grants C. Pipeline Right-of-Way Grants

IV. Proposed Revisions to Other BOEM Security Requirements A. Third-party Guarantees B. Lease-specific Abandonment Accounts C. Cancellation of Additional Bonds

5

V. BOEM Evaluation Methodology A. Credit Ratings B. Valuing Proved Oil and Gas Reserves

VI. Proposed Revisions to BOEM Definitions

VII. Proposed Revisions to BSEE Decommissioning Regulations A. Decommissioning by Predecessors B. Decommissioning of Rights-of-Use and Easement C. Bonding Requirement for Appeals of Decommissioning Decisions and Orders

VIII. Section-by-Section Analysis A. Regulations Proposed by BSEE B. Regulations Proposed by BOEM

IX. Additional Comments Solicited by BOEM and BSEE

X. Procedural Matters

A. Regulatory Planning and Review (E.O. 12866, 13563 and 13771) B. Regulatory Flexibility Act C. Small Business Regulatory Enforcement Fairness Act D. Unfunded Mandates Reform Act of 1995 E. Takings Implication Assessment (E.O. 12630) F. Federalism (E.O. 13132) G. Civil Justice Reform (E.O. 12988) H. Consultation with Indian Tribes (E.O. 13175 and Departmental Policy) I. Paperwork Reduction Act J. National Environmental Policy Act K. Data Quality Act L. Effects on the Nation’s Energy Supply (E.O. 13211) M. Clarity of This Regulation

I. Background of BOEM Regulations

A. BOEM Statutory and Regulatory Authority and Responsibilities

BOEM derives its authority primarily from the Outer Continental Shelf Lands Act (OCSLA),

43 U.S.C. 1331-1356b, which authorizes the Secretary of the Interior (Secretary) to lease the

OCS for mineral development, and to regulate oil and gas exploration, development, and

production operations on the OCS. Section 5(a) of OCSLA (43 U.S.C. 1334(a)) authorizes the

6

Secretary to “prescribe such rules and regulations as may be necessary to carry out” the

“provisions of [OCSLA] relating to the leasing of the” OCS and “to provide for the prevention of

waste and conservation of the natural resources of the [OCS] and the protection of correlative

rights therein,” and provides that “such rules and regulations shall, as of their effective date,

apply to all operations conducted under a lease issued or maintained under” OCSLA. Section

5(b) of OCSLA provides that “compliance with regulations issued under” OCSLA shall be a

condition of “[t]he issuance and continuance in effect of any lease, or of any assignment or other

transfer of any lease, under the provisions of” OCSLA.

BOEM is responsible for managing development of the nation's offshore resources in an

environmentally and economically responsible way. The Secretary, in Secretary’s Order 3299,

delegated the authority to BOEM to carry out conventional (e.g., oil and gas) and renewable

energy-related functions including, but not limited to, activities involving resource evaluation,

planning, and leasing. Secretary’s Order 3299 also assigned authority to BSEE, including, but

not limited to, enforcement of the obligation to perform decommissioning. BSEE provides

estimates of decommissioning costs to BOEM so that the financial assurance required by BOEM

will be sufficient to cover the cost to perform decommissioning, thereby protecting the

government from incurring financial loss to the maximum extent practicable. While BOEM has

program oversight for the financial assurance requirements set forth in 30 CFR Parts 550, 551,

556, 581, 582 and 585, this proposed rule pertains only to the financial assurance requirements

for oil and gas or sulfur leases under Part 556, and associated right-of-use and easement grants

and pipeline right-of-way grants under Part 550.

B. History of Bonding Regulations and Guidance

7

BOEM’s existing bonding regulations for leases (30 CFR 556.900 – 907) and pipeline right-

of-way grants (30 CFR 550.1011) published by BOEM’s predecessor, the Minerals Management

Service (MMS) on May 22, 1997 (62 FR 27948), provide the authority for the Regional Director

to require bonding for leases and pipeline right-of-way grants. Section 556.900(a) and §

556.901(a) and (b) require lease-specific base bonds or areawide base bonds in prescribed

amounts, depending on the level of activity on a lease or leases. Section 556.901(d) authorizes

the Regional Director to require additional security for leases above the prescribed amounts for

lease and areawide base bonds. Similarly, § 550.1011 authorizes the Regional Director to

require an areawide base bond in a prescribed amount and additional security above the

prescribed amount for pipeline right-of-way grants.

BOEM’s existing bonding regulations for right-of-use and easement grants (30 CFR 550.160

and 550.166), published by the MMS on December 28, 1999 (64 FR 72756), provide the

authority for the Regional Director to require bonds or other security for right-of-use and

easement grants. Section 550.160, which applies only to an applicant for a right-of-use and

easement that serves an OCS lease, provides that the applicant “must meet bonding

requirements.” While there is no requirement for an applicant for a right-of-use and easement

that serves an OCS lease to provide a base bond in a prescribed amount, § 550.160 authorizes the

Regional Director to require bonding if the Regional Director determines it is necessary.

Section 550.166 requires an applicant for a right-of-use and easement that serves a State

lease to provide a base bond of $500,000. Section 550.166 also provides that BOEM may

require additional security above the prescribed $500,000 base bond from the holder of a right-

of-use and easement that serves a State lease to cover additional costs and liabilities.

8

MMS, and now BOEM, has employed the criteria for determining whether additional

security should be required for leases to also determine whether additional security should be

required for right-of-use and easement grants or pipeline right-of-way grants, since there are no

criteria specified in the existing Part 550 for these purposes. The existing lease bonding

regulations under § 556.901(d) provide five criteria the bureau uses to determine whether a

lessee’s potential inability to carry out present and future financial obligations warrants a

demand for additional security. However, these regulations do not specifically describe how the

agency weighs those criteria. To provide guidance, MMS issued Notice to Lessees (NTL) No.

98-18N, effective December 28, 1998, which provided details on how it would apply these

regulations and the five criteria. This NTL was replaced by NTL No. 2003-N06, effective June

17, 2003, which was later replaced by NTL No. 2008-N07, effective August 28, 2008.

Pursuant to BOEM’s standard, historical practice under NTL No. 2008-N07, a lessee or grant

holder that passed established financial thresholds was waived from providing additional security

to cover its decommissioning liabilities. Additionally, co-lessees (regardless of their own

financial strength), were not required to provide additional security for the decommissioning

liability for that lease if one lessee was waived. The decommissioning liability on a lease, on

which there were two waived lessees, was not attributed to either lessee in calculating whether a

lessee’s cumulative potential decommissioning liability was less than 50% of the lessee’s net

worth, which was the standard for a lessee to qualify for a supplemental bonding waiver. The

policy was based on the assumption that the chances were very remote that both lessees would

become financially distressed and not be able to meet their obligations. While NTL No. 2008-

N07 was the most recent, fully implemented NTL, BOEM did not fully enforce it during the oil

price collapse of 2014-2016. BOEM was concerned that fully enforcing NTL No. 2008-N07

9

would have led to an increase of bond demands that, in turn, would have contributed to an

increase in bankruptcy filings.

Since 2009, there have been 30 corporate bankruptcies of offshore oil and gas lessees

involving owned or partially owned offshore decommissioning liability of approximately $7.5

billion in total. This figure includes properties with co-lessees and predecessors, and properties

held by companies that successfully emerged from a Chapter 11 reorganization bankruptcy.

While BOEM cannot predict the outcomes of bankruptcy proceedings, the actual financial risk is

significantly less than the total offshore decommissioning liability associated with offshore

corporate bankruptcies. Several of these companies experienced financial distress when oil

prices fell sharply at the end of 2014. Further, the fact that a company entered bankruptcy does

not necessarily suggest that there would be no private party responsible for decommissioning

costs, as company assets may be sold, and predecessors would retain their pre-existing obligation

to fund or perform the decommissioning.

The fact that recent bankruptcies and reorganizations have involved un-bonded

decommissioning liabilities demonstrates that BOEM’s regulations and the waiver criteria in

NTL No. 2008-N07 were inadequate to protect the public from potential responsibility for OCS

decommissioning liabilities, especially during periods of low hydrocarbon prices. Specifically,

ATP Oil & Gas was a mid-sized company with a financial assurance waiver when it filed for

bankruptcy in 2012. Similarly, Bennu Oil & Gas was waived at the time of its bankruptcy filing,

and Energy XXI and Stone Energy did not lose their waivers until less than 12 months prior to

filing bankruptcy. While most affected OCS properties were ultimately sold or the companies

reorganized under Chapter 11 of the U.S. Bankruptcy Code, several bankruptcies, including

those of ATP and Bennu, demonstrated the weaknesses in BOEM’s financial assurance program.

10

These weaknesses were apparent because the unsecured decommissioning liabilities exceeded

the value of the leases to potential purchasers or investors. BOEM cannot forecast the outcome

of bankruptcy proceedings, which may lead to the restructuring or liquidation of an insolvent

company, in addition to other potential outcomes. If BOEM has insufficient financial assurance

at the time of bankruptcy, BOEM may seek legal avenues for obtaining funds in bankruptcy

proceedings, but outcomes are not assured and there may be no recourse for obtaining additional

funds, resulting in the Department of the Interior’s needing to perform the decommissioning with

the cost coming from the American taxpayer.

In 2009, MMS issued a proposed rule (74 FR 25177) to rewrite the entirety of the leasing

provisions of Part 256 (now designated as Part 556). However, because of uncertainty associated

with revising the bonding requirements, BOEM deferred revision of the bonding regulations to a

separate rulemaking. This separate rulemaking commenced August 14, 2014, with an advance

notice of proposed rulemaking (79 FR 49027) to solicit ideas for improving the bonding

regulations.

In December 2015, the Government Accountability Office (GAO) reviewed BOEM’s

financial assurance procedures (see GAO-16-40, https://www.gao.gov/products/GAO-16-40)

(the GAO Report). While acknowledging BOEM’s ongoing efforts to update its policies, the

GAO Report recommended, inter alia, that “BOEM complete its plan to revise its financial

assurance procedures, including the use of alternative measures of financial strength.” GAO-16-

40 at 34. Following further analysis and a series of stakeholder meetings in 2015 and 2016 to

solicit industry input, BOEM attempted to remedy the weaknesses in its financial assurance

program as administered under NTL No. 2008-N07 with new NTL No. 2016-N01, Requiring

Additional Security, which became effective September 12, 2016. NTL No. 2016-N01 sought to

11

clarify the procedures and explain how BOEM would use the regulatory criteria to determine if,

and when, additional security may be required for OCS leases, right-of-use and easement grants,

and pipeline right-of-way grants. The NTL continued to use net worth of a lessee as a measure

of financial strength because this measure was required by the regulations. The NTL also

detailed several changes in policy and refined the criteria used to determine a lessee’s or grant

holder’s financial ability to carry out its obligations. On August 29, 2016, BOEM requested

GAO to close the above stated recommendation in the GAO Report, stating that BOEM had

implemented the recommendation by issuance of the NTL. GAO found that the recommendation

had been implemented and closed the audit recommendation later in fiscal year 2016. BOEM

acknowledges that NTL No. 2016-N01 was never fully implemented. This proposed rulemaking

is another effort (in addition to the partially implemented NTL) to revise BOEM’s financial

assurance procedures, including the proposal to use alternative measures to evaluate financial

strength.

In December 2016, BOEM began implementing the NTL and issued numerous orders to

lessees and grant holders to provide additional security for “sole liability properties,” i.e., leases,

right-of-use and easement grants, and pipeline right-of-way grants for which the lessee or grant

holder is the only party liable for meeting the lease or grant obligations.

On January 6, 2017, BOEM issued a Note to Stakeholders extending implementation of NTL

No. 2016-N01 for six months. The extension applied to leases, right-of-use and easement grants,

and pipeline right-of-way grants for which there were co-lessees, predecessors in interest, or

both, except where BOEM determined there was a substantial risk of nonperformance of the

interest holder’s decommissioning obligation. The extension of the implementation timeline

allowed BOEM an opportunity to evaluate whether certain leases and grants were considered to

12

be sole liability properties. Upon closer examination and upon receiving feedback from notified

stakeholders regarding inaccuracies in BOEM’s assessment of sole liabilities, BOEM issued a

second Note to Stakeholders on February 17, 2017, announcing that it would withdraw the

December 2016 orders issued on sole liability properties to allow time for the new

Administration to review BOEM’s financial assurance program.

C. Regulatory Reform - New Executive and Secretary’s Orders

On March 28, 2017, the President issued Executive Order (E.O.) 13783—Promoting Energy

Independence and Economic Growth. Section 2 of the E.O. directed Federal agencies to: review

all existing regulations and other agency actions that potentially burden the development of

domestic energy resources; provide recommendations that, to the extent permitted by law, could

alleviate or eliminate aspects of agency actions that burden domestic energy production; and

pursue processes for implementing such recommendations, as appropriate and consistent with

law. While section 2 of the E.O. directed Federal agencies to review regulations, section 2 did

not direct any particular changes or outcomes.

On April 28, 2017, the President issued E.O. 13795, Implementing an America-First

Offshore Energy Strategy, which ordered the Secretary of the Interior to direct the BOEM

Director to take all necessary steps consistent with law to review BOEM’s NTL No. 2016-N01

and determine whether modifications are necessary, and if so, to what extent, to ensure operator

compliance with lease terms while minimizing unnecessary regulatory burdens. This E.O. also

required the Secretary of the Interior to review BOEM’s financial assurance regulatory policy to

determine the extent to which additional regulation is necessary.

Secretary’s Order No. 3350 of May 1, 2017, America-First Offshore Energy Strategy,

followed on E.O. 13795 and directed BOEM to promptly complete its previously announced

13

review of NTL No. 2016-N01 and to “provide to the Assistant Secretary – Land and Minerals

Management (ASLM), the Deputy Secretary, and the Counselor to the Secretary for Energy

Policy, a report describing the results of the review and options for revising or rescinding NTL

No. 2016-N01.” Secretary’s Order No. 3350 further specified that BOEM’s previously

announced extension of the implementation timelines for NTL No. 2016-N01 would remain in

effect pending completion of the review.

On June 22, 2017, BOEM issued a third Note to Stakeholders announcing that it was in the

final stages of its review of NTL No. 2016-N01, but had determined that “more time was

necessary to work with industry and other interested parties,” and therefore, that it would be

appropriate to extend the implementation timeline beyond June 30, “except in circumstances

where there would be a substantial risk of nonperformance of the interest holder’s

decommissioning liabilities.”

BOEM continued to review the provisions of NTL No. 2016-N01 and examine options for

revising or rescinding the NTL. BOEM also continued to review its financial assurance

regulatory policy to determine the extent to which regulatory revision is necessary. As a result,

BOEM recognized the need to develop a comprehensive program to assist in identifying,

prioritizing, and managing the risks associated with industry activities on the OCS.

In October 2019, the President issued E.O. 13891, Promoting the Rule of Law Through

Improved Agency Guidance Documents, which, in recognition that Americans deserve an open

and fair regulatory process, defines “significant guidance documents” as having an effect of $100

million or more, sets a policy that guidance documents should be non-binding, and encourages

legally binding requirements to be enacted through notice and comment rulemaking under the

Administrative Procedure Act. Because the NTL was issued rather than moving forward with the

14

2014 ANPRM, BOEM believes that compliance with E.O. 13981 is best achieved by

rulemaking, which provides for notice and comment.

D. Purpose of BOEM’s Portion of the Proposed Rulemaking

BOEM’s goal for its financial assurance program continues to be the protection of the

American taxpayers from exposure to financial loss associated with OCS development, while

ensuring that the financial assurance program does not detrimentally affect offshore investment

or position American offshore exploration and production companies at a competitive

disadvantage. After carefully considering the recommendations of the GAO report, as well as

feedback received during the review of NTL No. 2016-N01 indicating that the policy changes

identified in the NTL could result in significant economic hardships for companies operating on

the OCS, particularly during times of low oil prices, BOEM reconsidered its approach for

identifying, prioritizing, and managing the risks associated with industry activities on the OCS.

The proposed rule would implement the recommendation of the GAO report that BOEM

look to alternative measures of financial strength. Under the proposed rule, instead of relying

primarily on net worth to determine whether a lessee must provide additional security, BOEM

would primarily consider a lessee’s or its predecessor’s credit rating. Credit rating agencies take

many factors into account when evaluating a company, particularly those that emphasize cash

flow, such as debt-to-earnings ratios and debt-to-funds from operations. A credit rating would

consider forward-looking factors, including the income statement and cash flow statement,

which provide a broader picture of how well a company can meet its future liabilities. On the

other hand, a net worth analysis tends to be backward-looking, because it is calculated from a

company’s balance sheet, which shows the current amount of its assets and liabilities. A lessee’s

financial deterioration can occur quickly. Relying on the more forward-looking credit rating

15

analysis, both to determine whether additional security may be necessary and to determine

whether a company can be a guarantor on the OCS, would allow BOEM to foresee a lessee’s

possible financial distress sufficiently ahead of time to take appropriate action.

Further, the proposed rule’s new approach would be rooted in the joint and several liability of

all lessees, co-lessees, and predecessor lessees for all non-monetary obligations on a lease. In

most cases of default by a current lessee, a predecessor lessee can be called upon to perform

decommissioning. This proposed rule would rely on the combined responsibility of all current

and predecessor lessees to perform required decommissioning. Regardless of the proposed rule,

even in cases where a predecessor divested its full interest in a lease to another company by

assignment after accruing an obligation to decommission certain infrastructure (i.e., well,

platform, pipeline), the predecessor remains jointly and severally liable for decommissioning that

infrastructure. The proposed rule would acknowledge the larger universe of companies to whom

BSEE can look for performance under the law, and so would reduce the circumstances under

which BOEM would need to require additional security.

BOEM’s proposed regulatory changes would allow the bureau to more effectively address a

number of complex financial and legal issues (e.g., joint and several liability and economic

viability of offshore assets) associated with decommissioning liability on the OCS. By

addressing the issues through rulemaking, BOEM will afford all interested and potentially

affected parties the opportunity to provide additional substantive comments to the agency. This

rulemaking need not be concerned with general bond amounts, nor is BOEM requesting

comments on the general bond amounts, because any potential shortfall could be addressed using

the flexibility of the additional security provisions.

16

In summary, BOEM is proposing this rulemaking to clarify and simplify its financial

assurance requirements with the ultimate goal of providing regulatory changes that would

continue to protect taxpayers while providing certainty and needed flexibility for OCS operators.

II. Background of BSEE Regulations

A. BSEE Statutory and Regulatory Authority and Responsibilities

Like BOEM, BSEE derives its authority primarily from OCSLA, which authorizes the

Secretary, as discussed in part I.A, to regulate oil and gas exploration, development, and

production operations on the OCS. As previously stated, Secretary’s Order 3299 delegated

authority to perform certain of these regulatory functions to BSEE. To carry out its

responsibilities, BSEE regulates offshore oil and gas operations to enhance the safety of

exploration for and development of oil and gas on the OCS, to ensure that those operations

protect the environment, to conserve the natural resources of the OCS, and to implement

advancements in technology. BSEE’s regulatory program covers a wide range of facilities and

activities, including decommissioning requirements, which are the primary focus of this

rulemaking. Detailed information concerning BSEE’s regulations and guidance to the offshore

oil and gas industry may be found on BSEE’s website at: http://www.bsee.gov/Regulations-and-

Guidance/index.

B. BSEE’s Decommissioning Regulations and Guidance

On May 17, 2002, MMS issued regulations that amended requirements for plugging wells,

decommissioning platforms and pipelines, and clearing sites. (See 67 FR 35398.) In 2011,

Secretary’s Order 3299 assigned responsibility for certain MMS programs and regulations,

including the decommissioning regulations, to BSEE. On October 18, 2011, BSEE revised the

decommissioning regulations to reflect BSEE’s role. (See 76 FR 64432.) On August 22, 2012,

17

BSEE amended the decommissioning regulations to implement certain safety recommendations

arising out of various Deepwater Horizon reports and moved the regulations to 30 CFR part 250

subpart Q. (See 77 FR 50856.)

The Subpart Q regulations generally require that lessees and owners of operating rights and

pipeline right-of-way (ROW) grant holders decommission wells, platforms and other facilities,

and pipelines when they are no longer useful for operations, but no later than one year after a

lease or ROW terminates.1 Failure to do so within this one-year period, absent BSEE’s approval,

will typically result in the issuance of a Notice of Incident of Noncompliance (INC) -- the initial

stage of enforcement. Subpart Q also provides BSEE with the authority to require the

decommissioning of wells, platforms and other facilities, and pipelines when no longer useful for

operations on active leases.

BSEE’s regulation, at 30 CFR 250.1701, also provides that lessees and owners of operating

rights are jointly and severally liable for meeting decommissioning obligations for facilities on

leases, including the obligations related to lease term pipelines, as the obligations accrue and

until each obligation is met.2 Likewise, all holders of a ROW grant are jointly and severally

liable for meeting decommissioning obligations for facilities on their right-of-way, including

ROW pipelines, as the obligations accrue and until each obligation is met. (See id. at

250.1701(b)). Section 250.1702 explains when lessees, operating rights owners, and pipeline

ROW grant holders accrue decommissioning obligations. Section 250.1703 describes general

1 Existing § 250.1703 generally requires lessees and ROW grant holders to permanently plug all wells, remove platforms and other facilities, and decommission all pipelines when they are no longer useful for operations and to clear the seafloor of all obstructions created by the lease or a pipeline right-of-way. Existing § 250.1710 requires that wells be permanently plugged within one year after a lease terminates, while § 250.1725 requires that platforms and other facilities be removed within one year after the lease or a pipeline right-of-way terminates (unless BSEE approves maintaining the structure for other uses). Sections 250.1750 and 250.1751 allow lessees and ROW grant holders to decommission pipelines in place (i.e., without removal) under certain conditions. 2 A similar requirement is imposed under existing § 250.146.

18

requirements for decommissioning of wells, platforms and other facilities, and pipelines. In

particular, paragraph (g) of § 250.1703 requires that responsible parties conduct all

decommissioning activities “in a manner that is safe, does not unreasonably interfere with other

uses of the OCS, and does not cause undue or serious harm or damage to the … environment.”

BOEM regulations at 30 CFR 556.710 and 556.805 provide that lessees and owners of

operating rights, who assign their interests, remain liable post-assignment for all obligations they

accrued during the period in which they owned their interest. Those regulations also provide that

BOEM and BSEE can require such assignor predecessors to perform those obligations if a

subsequent assignee fails to perform. Id.

In accordance with the joint and several liability provisions of 30 CFR Part 250: Subpart Q

and the residual liability provisions of part 556, when current lessees, operating rights owners,

or ROW holders fail to perform decommissioning obligations, BSEE typically orders all

predecessors that have accrued the defaulted obligation to perform any required

decommissioning. If a right-of-use and easement (RUE) grant holder fails to perform (when

obligated by the terms of the grant), BSEE typically orders any lessees or owners of operating

rights that accrued the relevant obligation prior to issuance of the RUE to perform required

decommissioning. BSEE may issue such orders without regard to whether a

predecessor’s ownership of interests in a lease or grant was in recent years or several decades

before. For example, if a predecessor divests its full interest in a lease to another company by

assignment after accruing the obligation, BSEE would still have the authority to order the

predecessor to perform accrued obligations upon default by a subsequent assignee, regardless of

the regulatory revisions in this proposed rulemaking.

19

To provide guidance and additional detail on the decommissioning requirements, MMS

issued NTL No. 2004-G06, Structure Removal Operations (effective April 5, 2004). MMS

replaced this NTL in 2010 with NTL No. 2010-G05, Decommissioning Guidance for Wells and

Platforms, which BSEE in turn replaced in December 2018 with NTL No. 2018-G03, Idle Iron

Decommissioning Guidance for Wells and Platforms. The 2018 NTL states that BSEE may

issue orders to lessees and ROW grant holders who fail to meet deadlines to decommission, as

specified in the NTL, for wells and facilities on active leases that are no longer useful for

operations. It also states that BSEE will typically issue INCs if decommissioning does not occur

within one year after a lease or ROW grant expires, terminates, or is relinquished, to prompt the

owners and their operator to address problems that occur when decommissioning is not carried

out in a timely manner. The 2018 NTL also states that, pursuant to 30 CFR 250.1711(a), BSEE

will issue orders to permanently plug any wells that pose hazards to safety or the environment.

C. Regulatory Reform

On February 24, 2017, the President issued E.O. 13777, Enforcing the Regulatory Reform

Agenda, which establishes two main goals for Federal agencies in alleviating unnecessary

burdens placed on the American people:

(1) To improve implementation of the regulatory reform initiatives and policies specified in

E.O. 13771 (Reducing Regulation and Controlling Regulatory Costs), E.O. 12866, and E.O.

13563 (Improving Regulation and Regulatory Review); and

(2) To identify regulations for repeal, replacement, or modification, that, among other things,

are outdated, unnecessary, or ineffective; impose costs that exceed benefits; or create a serious

inconsistency or otherwise interfere with regulatory reform initiatives and policies.

20

D. Stakeholder Engagement

On June 22, 2017, the Office of the Secretary issued a Request for Comments to solicit

public input on how the Department can improve implementation of regulatory reform initiatives

and policies and identify regulations for repeal, replacement, or modification (see 82 FR 28429).

As a result, the Department received several written comments, some of which pertained to

BOEM’s financial assurance regulatory requirements, including financial assurance for

decommissioning, and some of which addressed BSEE’s procedures for requiring performance

of decommissioning obligations by predecessors when the current lessees or grant holders fail to

do so. The commenters that addressed BSEE’s procedures urged BSEE to focus responsibility

for decommissioning liabilities on current lessees, regardless of predecessors in title, inasmuch

as predecessors are not held responsible for liabilities created after their ownership terminates;

and, in cases of a default by current owners, to pursue performance by predecessors in reverse

chronological order starting with the most recent predecessor.

BSEE has considered the comments from stakeholders and determined that BSEE’s

decommissioning regulations could be revised to support the goals of the Administration’s

regulatory reform initiatives, while also ensuring safety and environmental protection.

Accordingly, BSEE proposes to revise existing 30 CFR Part 250: Subpart Q regulations to

address the order in which predecessors will be ordered to perform decommissioning if the

current lessees or grant holders fail to do so. In addition, BSEE proposes to revise the

decommissioning regulations to expressly include holders of RUE grants among the parties who

can accrue obligations for decommissioning. Finally, BSEE proposes to require parties who file

administrative appeals of decommissioning decisions or orders to post a surety bond in order to

seek to obtain a stay of that decision or order pending the appeal, and thus minimize any

21

possibility that resources for the performance of decommissioning will be unavailable following

exhaustion of appeals, such as if no other predecessors exist to perform the decommissioning

activities.

E. Purpose of BSEE’s Portion of the Proposed Rulemaking

Timely decommissioning of oil and gas wells, platforms and other facilities, and pipelines

and related infrastructure is a critical requirement for OCS operators to adhere to, and when

necessary, for BSEE to enforce. If not properly decommissioned, such infrastructure could cause

safety hazards or environmental harm, or become obstructions by interfering with navigation or

other uses of the OCS (such as fishing and future resource development). Under some

conditions, however, lessees or grant holders may transfer platforms to artificial reef sites

maintained by coastal states, or ROW grant holders may decommission pipelines in place, in lieu

of removal. This proposed rule would not change regulations governing the operational aspects

of decommissioning.

Under existing regulations, BSEE can require a predecessor to bring a lease into compliance

if its assignee or any subsequent assignee has failed to perform an obligation that accrued prior to

assignment. BSEE’s proposed rule would create a new procedure under Subpart Q for

establishing the sequence in which BSEE will order predecessors to carry out their accrued

decommissioning obligations when current lessees or grant holders (or other predecessors) fail to

do so. Specifically, after the current lessees or grant holders have defaulted, BSEE would pursue

liable predecessors in reverse chronological order through the chain-of-title to perform their

accrued decommissioning obligations. Under this approach, the most recent predecessors would

receive orders to conduct decommissioning first, before BSEE turns to predecessors more remote

in time.

22

This proposed change may provide additional transparency and clarity for BSEE and BOEM,

as well as for the public and the oil and gas industry, in ensuring that decommissioning

requirements will be met. In light of the proposed approach, lessees and grant holders wanting to

sell their leases or grants may choose to consider financially stronger companies as potential

purchasers or assignees. Under the proposal, both parties to such transactions would know in

advance that BSEE would turn first to the most recent assignor to perform decommissioning if

the current lessee or grant holder fails to perform its decommissioning obligation; in that case,

the seller may well want some assurance that the purchasing company has the means to perform.

Accordingly, this additional transparency may result in limiting the universe of potential

purchasers to more financially capable companies that present a reduced risk of default or are

able to provide financial assurances to the seller, thus assuring that decommissioning can be

performed.

In addition, since the more recent owners are more familiar with the current state of the

facilities than previous owners, the proposed approach would further ensure safer and more

efficient decommissioning. Also, the more recent prior owners often accrue liabilities for wells,

pipelines, or platform improvements for which earlier owners have no liability because these

wells, pipelines, or platform improvements were added after the earlier owners had assigned

their interests. The more recent prior owners are, therefore, the most likely predecessor(s) who

can be required to fully decommission all facilities. In summary, as proposed, it is reasonable

and efficient for BSEE to turn first to the most recent owners when the current owners do not

perform all the decommissioning obligations.

BSEE’s proposal would not exempt any current lessees or grant holders, or predecessors,

from liability; each party remains liable for its own accrued obligations. The proposal would

23

simply establish a procedure through which BSEE would prioritize its efforts toward the groups

of jointly and severally liable predecessors by looking first to the most recent in time, rather than

looking initially to all jointly and severally liable predecessors. Details of the proposal are found

in part VII.A of this proposed rule.

The proposed rule, if adopted, could increase confidence that the cost of decommissioning

will be borne by the more recent owners while still ensuring that decommissioning is carried out

in a safe and environmentally responsible manner. While there is no amount of time which

reduces or eliminates joint and several liability of predecessors for their accrued liabilities,

defining an order of recourse among predecessors would eliminate some of the unpredictability

perceived in the past. In addition, the proposed rule would help BSEE to better address

maintenance and monitoring of facilities in cases where all current owners’ default.

The proposed rule would also address the decommissioning of OCS facilities located on

RUE grants. These grants authorize a RUE holder to use a portion of the seabed at an OCS site

not leased by the RUE holder, in order to construct, modify, or maintain platforms, artificial

islands, facilities, installations, and other devices that support the exploration, development, or

production of oil and gas from a RUE holder’s nearby lease. BOEM’s financial assurance

regulations encompass RUEs as a defined category of interest in OCS lands, and provide that

RUE grant holders must comply with the same bonding obligations as other lessees. However,

as a result of numerous revisions of the regulations specific to decommissioning, those

regulations no longer clearly address decommissioning by RUE grant holders, so BSEE now

proposes to add RUE holders to the parties that accrue obligations for decommissioning. This is

consistent with BOEM’s existing process of including the decommissioning obligation in the

terms of the RUE grant, as well as the general understanding typically captured in agreements

24

between RUE holders and facility owners by which RUE holders secure title to or rights to use

existing facilities originally installed when the tract was subject to a lease. This proposed

amendment to the existing BSEE regulations is discussed more completely at part VII.B.

In addition, BSEE’s existing regulations (at 30 CFR part 290) allow parties adversely

affected by a final BSEE order or decision - including a decommissioning-related decision or

order - to administratively appeal that decision to the Interior Board of Land Appeals (IBLA).

Existing § 290.7(a)(2) requires a party appealing a civil penalty order issued by BSEE to post a

surety bond, in accordance with 30 CFR 250.1409, pending the appeal. There has previously

been no such bonding requirement for appeals of decommissioning orders.

Inasmuch as income generation from a lease typically ceases well before decommissioning

orders are issued, an appeal poses a risk to BSEE that, where financial assurance was not already

in place, a lessee appealing a decommissioning order may not have the wherewithal to

decommission after a lengthy appeal has run its course and the Board affirms BSEE’s order.

Moreover, the delay occasioned by the appeal process may create a risk that some or all other

predecessors may have deteriorated financial health by the time BSEE turns to them for

performance.

Thus, in order to avoid the possibility of undue delays, and to ensure that funds are available

to meet the decommissioning requirements in a safe and environmentally sound manner when an

unsuccessful appellant subsequently defaults, BSEE proposes to amend the 30 CFR Part 250:

Subpart Q and Part 290 regulations as described in part VII.C. Specifically, BSEE proposes to

require any party appealing a decommissioning decision or order to post a surety bond in order to

seek to obtain a stay of that decision or order pending the appeal to ensure that the necessary

25

decommissioning activities can be performed in a timely manner if the appeal is denied and the

appellant(s) subsequently fail to perform the required decommissioning activities.

III. Proposed Revisions to BOEM Bonds and Other Security Requirements

BOEM’s existing bonding and other security regulatory framework has two main

components: 1) base bonds, generally required in amounts prescribed by regulation, and 2) bonds

or other security above the prescribed amounts that may be required by order of the Regional

Director upon determination that an increased amount is necessary to ensure compliance with

OCS obligations. BOEM’s objective is to ensure that taxpayers never have to bear the cost of

meeting the obligations of lessees and grant holders on the OCS. At the same time, BOEM must

balance this objective against the costs and disincentives to additional exploration, development

and production that are imposed on lessees and grant holders by increased amounts of surety

bonds and other security requirements. To maintain a balanced framework, BOEM proposes to:

1) modify the evaluation process for requiring additional security; 2) streamline the evaluation

criteria; and 3) remove restrictive provisions for third-party guarantees and decommissioning

accounts. The proposed rule would allow the Regional Director to require additional security

only when: 1) a lessee or grant holder poses a substantial risk of becoming financially unable to

carry out its obligations under the lease or grant; 2) there is no co-lessee, co-grant holder, or

predecessor that is liable for those obligations and that has sufficient financial capacity to carry

out the obligations; and 3) the property is at or near the end of its productive life, and thus, may

not have sufficient value to be sold to another company that would assume these obligations.

A. Leases

Each current lessee is jointly and severally liable for the lease decommissioning obligations,

which means that each lessee is liable up to the full amount of the relevant obligation and that

26

BOEM may pursue compliance with the obligations from any one lessee. As such, each lessee

is liable for all decommissioning obligations that accrue during its ownership, as well as those

that accrued prior to its ownership. In addition, a lessee that transfers its interest to another party

continues to be liable for any unperformed decommissioning obligations that accrued prior to, or

during, the time that lessee owned an interest in the lease.

BOEM’s additional security evaluation process, contained in 30 CFR 556.901(d), is based on

the current lessee’s ability to carry out present and future obligations. BOEM proposes to

expand this evaluation process to include an evaluation of the ability of a co-lessee, or a

predecessor lessee, to carry out present and future obligations. This change recognizes the

mitigation of the risk occasioned by the joint and several liability of all current and predecessor

lessees, which allows BSEE to require co-lessees or predecessor lessees, or both, to perform

decommissioning when a current lessee is unable to perform. While the liability for obligations

between current and predecessor lessees has always been joint and several, this would be the first

time BOEM has explicitly considered the ability of predecessor lessees to carry out the present

and future obligations of current lessees when determining the additional security requirements

for current lessees.

Under BOEM’s existing regulations, the Regional Director’s evaluation of a lessee’s

potential need for additional security for a lease is based on the following five criteria: financial

capacity; projected financial strength; business stability; reliability in meeting obligations based

upon credit rating or trade references; and record of compliance with laws, regulations, and lease

terms. BOEM is proposing to streamline its evaluation process by using only two criteria to

determine whether additional security on a lease may be required: 1) a credit rating, either a

credit rating from a Nationally Recognized Statistical Rating Organization (NRSRO), as

27

identified by the United States Securities and Exchange Commission (SEC) pursuant to its grant

of authority under the Credit Rating Agency Reform Act of 2006 and its implementing

regulations at 17 C.F.R. Parts 240 and 249(b), or a proxy credit rating determined by BOEM

using audited financial statements; and 2) the value of proved oil and gas reserves. These two

criteria better align BOEM’s evaluation process with accepted financial risk evaluation methods

used by the banking and finance industry. Eliminating reliance on less relevant information,

such as length of time in operation to determine business stability, or trade references to

determine reliability in meeting obligations, will simplify the process and remove criteria that

may not accurately or consistently predict potential financial distress.

BOEM proposes to eliminate the “business stability” criterion found in existing

§ 556.901(d)(1)(iii). The existing regulation bases business stability on five years of continuous

operation and production of oil and gas, but BOEM determined that there is little correlation

between being in business for five or more years and a company’s ability to carry out its present

and future obligations. BOEM met with S&P credit analysts about their process for considering

business stability. S&P credit analysts confirmed that business stability is a factor in credit

ratings, however, S&P does not measure a company’s business stability by merely noting how

long it has been since the company was incorporated. BOEM conducted an analysis of offshore

bankruptcies, including an assessment of the number of years incorporated prior to bankruptcy,

and determined that whether a company was in business for five or more years had no

relationship to its likelihood to declare bankruptcy.

BOEM also proposes to eliminate the existing “record of compliance” criterion found in

existing § 556.901(d)(1)(v). BOEM reviewed BSEE’s INCs and Increased Oversight List.

BOEM’s review of these lists confirmed the feedback BOEM received in response to the NTL,

28

which was that companies with a large number of properties and components tended to receive a

large number of INCs and had a larger number of individual properties on the Increased

Oversight List.3 BOEM has determined that the primary predictor of the number of INCs a

company receives is not its financial health, but the number of OCS properties that it owns.

BOEM determined that a company’s record of compliance did not correlate to its overall

financial health and, therefore, is not an accurate indicator of the need for financial assurance to

assure that the company carries out its present and future OCS obligations. Offshore companies

with a large portfolio of offshore assets inspected by BSEE accumulated a far greater number of

BSEE-issued Incidents of Non-Compliance than offshore companies with fewer offshore assets

inspected by BSEE, irrespective of the company’s overall financial health. The “record of

compliance” criterion was also difficult to fairly apply since not all noncompliance is considered

equal evidence of a lack of commitment to observe regulatory requirements.

BOEM proposes to replace the existing “financial capacity” and “reliability” criteria in

§ 556.901(d)(1) with issuer credit rating or proxy credit rating. BOEM has found credit rating,

which had been a part of the reliability criterion, to be the most reliable indicator of financial

ability. Credit ratings provided by a NRSRO incorporate a broad range of qualitative and

quantitative factors, and a business entity’s credit rating represents its overall credit risk, or its

ability to meet its financial commitments.

If a lessee does not have a credit rating from a NRSRO, the lessee may instead submit

audited financial statements, and BOEM will determine a proxy credit rating using the S&P

Credit Analytics Credit Model, or a similar widely accepted credit rating model. Such audited

financial information is currently the basis of one of the five criteria - the “financial capacity”

3 Most recent data available at https://www.data.bsee.gov/Company/INCs/Default.aspx

29

criterion. In the proposed rule, this information will be just one of the considerations used for

proxy credit ratings, following credit rating agency models.”

BOEM has concluded that audited financial statements, prepared in accordance with

Generally Accepted Accounting Principles (GAAP) and accompanied by an auditor’s certificate,

provide a level of certainty that the financial statements accurately represent the company’s

economic position and operational performance. Using this audited financial information to

generate a proxy credit rating would allow BOEM to accurately determine if additional security

is needed.

The proposed rule would allow the Regional Director to require a lessee to provide additional

security if the lessee does not have a credit rating from a NRSRO that is greater than or equal to

either BB- from S&P Global Ratings (S&P) or Ba3 from Moody’s Investor Service (Moody’s);

or a proxy credit rating greater than or equal to either BB- or Ba3 as determined by the Regional

Director based on audited financial information including an income statement, balance sheet,

and statement of cash flows, with an accompanying auditor’s certificate.

Under existing BOEM regulations, co-lessees and predecessors are jointly and severally

liable for accrued decommissioning obligations, and the risk that the government will be

responsible for the decommissioning cost is reduced when those entities are financially viable.

Hence, BOEM may determine not to require additional security for properties with financially

viable co-lessees and predecessors. To be considered financially viable, the co-lessee or

predecessor would have to meet the same credit rating or proxy credit rating criteria as a lessee.

If the lessee does not meet the credit rating or proxy credit rating criteria, BOEM would

review the lessee’s obligations at the lease level and determine whether to require additional

security for each lease owned by that lessee. BOEM may require the lessee to provide additional

30

security on a lease-by-lease basis if a co-lessee does not meet the credit rating or proxy credit

rating criteria.

If the co-lessee does not meet the credit rating or proxy credit rating criteria, BOEM would

review the proved oil and gas reserves on the lease. The Regional Director may require the

lessee to provide additional security for that lease if the net present value of those proved

reserves is less than or equal to three times the cost of the decommissioning (as estimated by

BSEE) associated with the production of the reserves. As described in more detail below,

BOEM determined that properties with a net present value of proved oil and gas reserves

exceeding three times the decommissioning costs associated with production of those reserves

pose minimal risk that the government will be required to bear the cost of decommissioning,

because these properties are more likely than other properties to be purchased by another

company. That company would then become liable for existing decommissioning obligations,

reducing the risk that those costs would be borne by the government. Consequently, BOEM is

proposing to use (and is requesting comments on) this test – net present value of proved oil and

gas reserves on the lease exceeding three times the decommissioning costs (decommissioning

costs as estimated by BSEE) associated with production of those reserves – as the criterion to

replace the existing generalized “projected financial strength” criterion, which considered

whether the estimated value of a lessee’s existing lease production and proven reserves was

significantly in excess of the lessee’s existing and future lease obligations.

If neither the lessee nor any co-lessee meets the credit rating or proxy credit rating criteria

and there are not sufficient oil and gas reserves on the lease, BOEM would look to the credit

ratings of prior lessees. If no predecessor lessee liable for decommissioning any facilities on the

lease meets the credit rating or proxy credit rating criteria, the Regional Director may require the

31

lessee to provide additional security. Moreover, even if a predecessor meets the credit rating or

proxy credit rating criteria, the Regional Director may require the lessee to provide additional

security for decommissioning obligations for which such a predecessor is not liable.

B. Right-of-Use and Easement Grants

BOEM’s regulations concerning right-of-use and easement grants for an OCS lessee and a

State lessee are found in 30 CFR 550.160 through 550.166. Section 550.160 provides that an

applicant for a right-of-use and easement that serves an OCS lease “must meet bonding

requirements,” but the regulation does not prescribe a base bond amount. The proposed rule

would replace this vague requirement with a cross-reference to the specific criteria governing

bond demands in § 550.166(d).

BOEM is proposing to revise the bonding regulations to clarify that any right-of-use and

easement grant holder, whether the right-of-use and easement serves a State lease or serves an

OCS lease, may be required to provide additional security for the right-of-use and easement if

the grant holder does not meet the credit rating or proxy credit rating criteria proposed to be used

for lessees. The value of proved oil and gas reserves will not be considered because a right-of-

use and easement grant does not entitle the holder to any interest in oil and gas reserves.

However, this proposal would allow consideration of the credit rating of a predecessor right-of-

use and easement grant holder and a predecessor lessee, i.e., a lessee that held interests in the

lease on which the right-of-use and easement is now located and is liable for accrued obligations

for the facilities thereon, which better aligns BOEM’s evaluation process with accepted financial

risk evaluation methods used by the banking and finance industry.

C. Pipeline Right-of-Way Grants

32

BOEM’s bonding requirements for pipeline right-of-way grants, contained in 30 CFR

550.1011, prescribe a $300,000 area-wide base bond that guarantees compliance with all the

terms and conditions of the pipeline right-of-way grants held by a company in an OCS area.

BOEM may require a pipeline right-of-way grant holder to provide additional security if the

Regional Director determines that a bond in excess of $300,000 is needed. BOEM is proposing

to revise the bonding regulations to provide the criteria under which the Regional Director could

demand a pipeline right-of-way grant holder to provide additional security and that criteria is

similar to that proposed for lessees, i.e., when the grant holder does not meet the credit rating or

proxy credit rating criteria proposed to be used for lessees. BOEM would not consider proved

reserves because right-of-way grants do not authorize holders to produce hydrocarbon reserves.

Another change proposed by the rule – to allow consideration of the credit rating or proxy credit

rating of a co-grant holder – would better align BOEM’s evaluation process with accepted

financial risk evaluation methods used by the banking and finance industry. BOEM also

proposes to expand this evaluation to include consideration of the credit rating or proxy credit

rating of predecessor right-of-way grant holders because they remain liable for accrued

decommissioning obligations for facilities and pipelines on their right-of-way until each

obligation is met.

IV. Proposed Revisions to Other BOEM Security Requirements

A. Third-party Guarantees

BOEM is proposing to evaluate a potential guarantor using the same credit rating or proxy

credit rating criteria proposed for lessees. The value of proved oil and gas reserves will not be

considered because the value of proved reserves quantify only the marketability of the lease

33

interest being covered by the guarantee, in which the guarantor would not have an interest, and is

not used to describe the guarantor’s overall financial strength.

The criteria to evaluate a guarantor provided in the existing regulations have proven difficult

to apply. For example, § 556.905(a)(3) provides that the guarantor’s total outstanding and

proposed guarantees are not allowed to exceed 25 percent of its unencumbered net worth in the

United States. A company’s total outstanding and proposed guarantees depends on accurate

information provided by the guarantor, and BOEM has no way to confirm whether the 25 percent

threshold has been exceeded at the time of the application or afterward. The same provision

requires BOEM to consider the unencumbered net worth of the company in the United States,

while another provision, § 556.905(c)(2)(iv), requires BOEM to consider the guarantor’s

unencumbered fixed assets in the United States. Both of these criteria are difficult to apply when

the company being evaluated has domestic and international assets that must be separated.

Utilizing the same financial evaluation criteria, i.e., issuer credit rating or proxy credit rating, to

assess both guarantors and lessees as the most relevant measure of future capacity would provide

consistency in evaluations and avoid overreliance on net worth, which was GAO’s concern.

To allow more flexibility in the use of third-party guarantees, this proposed rule would

remove the requirement for a third-party guarantee to ensure compliance with the obligations of

all lessees, operating rights owners, and operators on the lease. Additionally, the proposed rule

would allow a third-party guarantee to be used as additional security for a right-of-use and

easement grant and/or a right-of-way grant, as well as a lease. Potential guarantors are reluctant

to provide a guarantee if they cannot choose the entity for which they are guaranteeing

compliance or limit the amount of their guarantee. This change would allow a guarantor to limit

its guarantee to a subset of lease or grant obligations, e.g., an amount sufficient to cover a

34

percentage of the decommissioning liability in proportion to the ownership percentage of a

particular lessee or grant holder, a specific dollar amount, or a specific facility.

By allowing a third-party guarantor to guarantee only the obligations it wishes to cover,

BOEM would provide industry with the flexibility to use the guarantee to satisfy financial

assurance requirements without the burden of forcing the guarantor to cover all the risks

associated with all parties on the lease or grant or operations in which the party they wish to

guarantee has no interest and over which this party may have no control. Moreover, the proposal

to allow BOEM to accept a third-party guarantee that is limited to specific obligations does not

reduce BOEM’s protection because the combination of all bonds and guarantees still would have

to ensure that all lease and grant obligations are fully secured.

The proposed rule would also allow BOEM to cancel a third-party guarantee under the same

terms and conditions that apply to cancellation of additional bonds and return of pledged

security, as provided in proposed § 556.906(d)(2).

Lastly, the existing regulation somewhat confusedly refers to both a “guarantee” and an

“indemnity agreement” (which meant the same thing), and the proposed rule clarifies that there

is only one agreement contemplated – the guarantee agreement.

B. Lease-specific Abandonment Accounts

Section 556.904 currently allows lessees to establish a lease-specific abandonment account in

lieu of the bond required in § 556.901(d). BOEM proposes to rename these accounts

“Decommissioning Accounts,” which is the current terminology used in industry, to remove any

perceived limitation to a single lease, and to allow these accounts to be used to ensure

compliance with additional security requirements for a right-of-use and easement grant or a

pipeline right-of-way grant as well as a lease. To make these accounts more attractive to lessees

35

who may need to use this method, BOEM also proposes to remove the requirements to pledge

Treasury securities to fund the account before the amount of funds in the account equals the

maximum amount insurable by the Federal Deposit Insurance Corporation (FDIC), which is

currently $250,000. BOEM notes that due to this current requirement, lessees may have been

unwilling to use decommissioning accounts since the vast majority of decommissioning moneys

would be in the form of low-yield Treasury securities. BOEM has determined that the risk of

loss through a bank failure is minimal, so, as a practical matter, the government’s security does

not depend on FDIC insurance.

C. Cancellation of Additional Bonds

BOEM proposes to revise § 556.906(d) to add three additional circumstances when BOEM

may cancel an additional bond, as discussed below in the analysis of § 556.906.

V. BOEM Evaluation Methodology

A. Credit Ratings

In this rulemaking, BOEM proposes to use an “issuer credit rating” when referring to “credit

rating” to evaluate the financial health of lessees and grant holders doing business or offering

guarantees on the OCS. An evaluation of S&P’s and Moody’s rating methodologies revealed

that the analyses they perform to determine an issuer credit rating are wide-ranging and include

factors beyond corporate financials (such as history, senior management, and commodity price

outlook). An issuer credit rating provides the rating agencies’ opinions of the entity’s ability to

honor senior unsecured debt and debt-like obligations. It is common for lessees to have both an

issuer credit rating and a bond issuance rating. However, bond issuance ratings are opinions of

the credit quality of a specific debt obligation only, which can vary based on the priority of a

creditor’s claim in bankruptcy or the extent to which assets are pledged as collateral. Due to the

36

priority of claims associated with debt and the limited purpose of bond issuance ratings, BOEM

proposes to accept only issuer credit ratings from a NRSRO, and references to credit rating in

this rulemaking refer only to an issuer credit rating. BOEM proposes to add “Issuer credit

rating,” as defined by S&P, as a newly defined term in Parts 550 and 556.

If an entity does not have an issuer credit rating, BOEM proposes to determine a proxy credit

rating based on audited financial information, including an income statement, balance sheet,

statement of cash flows, and the auditor's certificate.

BOEM proposes to use S&P’s Credit Analytics Credit Model to calculate proxy credit

ratings. This model would allow BOEM to compare the company with similar public companies

in the same industry segment. BOEM invites comments on the appropriateness of relying on this

model, or other similar, widely accepted credit rating models, to generate proxy credit ratings.

In establishing the issuer credit rating threshold of BB- (S&P) or Ba3 (Moody’s), an

equivalent credit rating provided by an SEC-recognized NRSRO, or a proxy credit rating

determined by the Regional Director, BOEM seeks to balance the financial risk to the

government and the taxpayer with minimizing unnecessary regulatory burdens as directed by

Executive Order 13795. BOEM compared the historical default rates for Moody’s credit ratings

and found the Ba3 credit rating was equivalent to the S&P BB- credit rating. BOEM reviewed

historical default rates across the entire credit rating spectrum, as well as the credit profile of oil

and gas sector bankruptcies arising from the commodity price downturn in 2014, to determine an

appropriate level of risk. The average S&P one-year default rate for BB- rated companies from

1981 to 2017 was 1.00%. The average S&P historical one-year default rates of BB- rated

companies are significantly better than average default rates for B rated companies (ranging from

2.08% to 7.15%) and C rated companies (26.82%). On the higher end of BB ratings at BB+, the

37

average one-year default rate (0.34% ) is similar to the average one-year default rate (0.25%) for

the lowest investment-grade rating of BBB-.

BOEM believes that one-year default rates are an appropriate measure of risk, given

BOEM’s policy of reviewing the financial status of lessees/ROW holders/RUE holders at a

minimum on an annual basis, the review typically corresponding with the release of audited

annual financial statements. In addition, BOEM continually monitors company credit rating

changes, market reports, trade press, articles in major news outlets, and quarterly financial

reports to review the financial status of lessees/ROW holders/RUE holders throughout the year

and can demand supplemental financial assurance through the Regional Director’s regulatory

authority as a result of mid-year changes in financial status.

BOEM invites comments on the appropriateness of this approach of relying on lessee and

grant holder credit ratings, including whether BOEM has proposed an appropriate credit rating

threshold, and if not, what threshold or set of thresholds would best protect taxpayer interests

while minimizing unnecessary industry burdens. BOEM also invites comments on the IRIA

generally, including the analytical assumptions and the regulatory alternatives analyzed.

Specifically, the IRIA analyzed a BBB- credit rating alternative threshold and a no-action

alternative.

B. Valuing Proved Oil and Gas Reserves

Under the proposed rule, if a lessee requests BOEM to take into account the proved reserves

on a particular lease to determine whether additional security is required, BOEM would require

the lessee to submit a reserve report for the proved oil and gas reserves (as defined by the SEC

regulations at 17 CFR 210.4-10(a)(22)) for the lease associated with the asset to be

decommissioned. The reserve report should contain the projected future production quantities of

38

proved oil and gas reserves, the production cost for those reserves, and the discounted future

cash flows from production. The reserve report would be required to provide the net present

value of the proved oil and gas reserves determined in accordance with the accounting and

reporting standards set forth in SEC Regulation S-X at 17 CFR 210.4-10 and SEC Regulation S-

K at 17 CFR 229.1200. BOEM would use the net present value when determining whether the

value of the reserves exceeds three times the cost of the decommissioning (as estimated by

BSEE) associated with the production of those reserves.

BOEM believes that a property with a high enough “reserves-to-decommissioning cost” ratio

would likely be purchased by another lessee if a current lessee defaults on its obligations, thereby

reducing the risk that decommissioning costs would be borne by the government, and

consequently reducing the need for additional security.

A reserves-to-decommissioning cost ratio of one-to-one would mean that the estimated value

of remaining oil and gas reserves on a lease is equal to the cost of decommissioning. BOEM

does not expect any new lessee to purchase a property with a ratio of one-to-one as the new

lessee would not receive any return on its investment once it bears the cost of decommissioning.

A reserves-to-decommissioning cost ratio below three-to-one might be considered adequate to

compensate a new lessee for the cost of purchasing the lease and assuming liability for all of the

existing decommissioning obligations. Based on past experience, BOEM, however, considers

that a lease with a ratio below three-to-one is often too risky to find a new lessee that is willing to

purchase it.

BOEM believes that a reserves-to-decommissioning cost ratio that exceeds three-to-one may

provide enough risk reduction that the Regional Director may determine the lessee is not

required to provide additional security for that lease. Three-to-one may be considered an

39

adequate ratio to provide time for the lessee to provide bonds or another form of financial

assurance prior to the property falling into a range where it may not attract a purchaser.

Establishing an appropriate reserves-to-decommissioning cost ratio is one approach toward

protecting the taxpayer during periods of commodity price volatility. Should commodity prices

decline in a manner similar to late 2014 through early 2016, BOEM believes a 3-to-1 ratio means

the property would most likely retain its economic viability and financial attractiveness to

potential buyers. BOEM requests comment on whether this is in fact an appropriate threshold, or

if there are better approaches and/or data sets available for analysis that would allow BOEM to

provide better certainty that taxpayer interests will ultimately be protected.

VI. Proposed Revisions to BOEM Definitions

To implement the changes proposed above, BOEM proposes to add or revise several

definitions in 30 CFR Part 550 and Part 556. For proposed Part 550, BOEM proposes to add

new terms and definitions for “Issuer credit rating,” “Predecessor,” and “Security,” and to revise

the definition of “You.” BOEM proposes to add a new term and definition for “Right-of-Use

and Easement” and remove the separate definitions of “Right-of-use” and “Easement” in Part

550 because those terms are not used in the existing regulatory text. Similarly, for Part 556,

BOEM proposes to add new terms and definitions for “Issuer credit rating” and “Predecessor,”

remove the existing term and definition of “Security or securities” and add a new term and

definition for “Security,” and revise the definitions of “Right-of-Use and Easement (RUE)” and

“You,” all of which will match those in proposed Part 550.

VII. Proposed Revisions to BSEE Decommissioning Regulations

A. Decommissioning by Predecessors

40

Most of the decommissioning provisions now located in 30 CFR Part 250: Subpart Q became

effective in 2002. Since that time, BSEE has become aware that some industry stakeholders

believe that certain provisions can cause uncertainty -- and thus create planning problems and

potentially unnecessary financial burdens -- for lessees or grant holders that long ago assigned

their interests. Specifically, some industry stakeholders have expressed concern that, when

current lessees or grant holders default or otherwise fail to perform their decommissioning

obligations, simultaneous pursuit by BSEE of any or all predecessors (consistent with their joint

and several liability), without focusing first on the most recent predecessors, may result in

confusion and inefficiency among the parties. Those stakeholders also assert that the current

process may reduce incentives for current and recent lessees or grant holders to prepare to

finance decommissioning. Such outcomes, according to those stakeholders, could make it harder

for BSEE to achieve the safety and environmental goals of the decommissioning regulations.

In particular, some stakeholders have asserted that -- since many leases have been owned or

operated by numerous entities over many years -- the immediate predecessors of the current

lessees or grant holders are more likely to be familiar with all of the facilities and equipment on

that lease that require decommissioning than the earlier predecessors whose connections with

operations are more remote. Thus, those stakeholders suggested that the closer in time

predecessors are to current operational conditions (e.g., status of repair, maintenance and

monitoring of equipment), the more those predecessors will know about any existing or potential

safety, environmental, or other risks related to the decommissioning operations, and the better

able they will be to address those risks.

Similarly, some stakeholders have suggested that the most immediate predecessors in the

chain-of-title are in a better position to understand the financial security necessary for

41

decommissioning at a particular site, and are more likely to have maintained or obtained such

security (e.g., through private security arrangements with later lessees or grant holders), in the

event that the current lessee or grant holder defaults.

Accordingly, these stakeholders recommended that, when the current lessee or grant holder

defaults, BSEE should enforce predecessor decommissioning obligations in a reverse

chronological sequence. Under this approach, after a default, BSEE would issue

decommissioning orders to the most recent predecessor(s) first before turning to predecessors

more remote in time. The stakeholders suggest that such an approach would better ensure safety

and environmental protection, as well as provide greater predictability and transparency as to

how BSEE enforces decommissioning obligations, compared to the current approach.

Although BSEE does not necessarily agree with all of those stakeholders’ assertions,

following such a reverse chronological sequence among predecessors may be a reasonable

approach to ensuring that the goals of the decommissioning regulations are met in a transparent

manner -- provided that the regulations include appropriate exceptions, under certain scenarios,

in order to ensure timely decommissioning in a safe and environmentally responsible manner.

Accordingly, without affecting the existing requirement for joint and several liability, proposed

new § 250.1708, How will BSEE enforce accrued decommissioning obligations against

predecessors?, would create a reverse chronological order of recourse among predecessors,

organized according to periods of time during which a particular designated operator(s) 4

approved by BOEM was in control of operations. Under the proposed rule, BSEE would

identify the predecessor lessees or grant holders who held their interests during the designated

4 By definition, the term “operator” means the person “the lessee(s) designates as having control or management of operations on the leased area or a portion thereof during a given time period.” (See 30 CFR 250.105.)

42

operator(s)’ tenure. After default by the current lessees or grant holders (or a prior group of

predecessors), BSEE would issue orders to a ‘group’ of temporally related predecessors to

perform their remaining accrued decommissioning obligations. In addition to the predecessors in

the relevant designated operator-based time period, proposed § 250.1708 would make clear that

BSEE will issue orders to other predecessors who assigned interests to a defaulted lessee. The

proposed rule would also add a new definition of “predecessor” to existing § 250.1700 to clarify

the meaning of that term as used in the other proposed revisions to Subpart Q.

However, the proposed rule also would provide that BSEE may deviate from the reverse

chronological order (i.e., may issue decommissioning orders to any or all other liable

predecessors) where previously ordered parties fail to obtain approval of a decommissioning

plan, or fail to timely execute the decommissioning according to the approved decommissioning

plan, as required under proposed §§ 250.1704(b) and 250.1708. When predecessors fail to

perform, unacceptable delays in decommissioning are likely to occur. Such delays could, in some

cases, lead to leaking wells or corrosion-laden structures that may pose safety or environmental

risks, or other concerns (as determined by a Regional Supervisor), making it essential that BSEE

be able to deviate from a strict chronological sequence.

Under the proposed rule, BSEE would also be able to deviate from a strict reverse

chronological framework when emergency conditions5 or safety or environmental threats arise

(e.g., when facilities are not properly maintained or monitored) or when BSEE determines that

an unreasonable delay would otherwise occur. The ability to address exigent circumstances

5 BSEE has noted that the cost and time to permanently plug wells and remove infrastructure damaged by storms is significantly higher than the cost and time to decommission assets that have not been damaged. (See NTL No. 2018-G03 at p. 1.)

43

posed by facilities and equipment awaiting decommissioning is critical to the accomplishment of

the purposes of Subpart Q. The exceptions proposed in § 250.1708(d) would confirm that BSEE

retains the authority to make demands on the most capable predecessors when risks associated

with delay raise concern about safety and environmental protection or unobstructed use of the

OCS, while in the majority of situations focusing demands on current owners and the most recent

predecessors.

Finally, proposed § 250.1708(b) would require predecessors to identify an entity to begin

maintaining and monitoring any facility identified in the BSEE decommissioning order within 30

days of receiving the order. The proposed rule would also require predecessors to identify a

designated operator for decommissioning within 60 days of receiving an order, and to submit a

decommissioning plan that includes the scope of work and projected decommissioning schedule

for all wells, platforms, other facilities within 90 days of receiving an order. These proposed

provisions would ensure that the ordered decommissioning proceeds in a timely and structured

fashion that ensures safety and environmental protection.

B. Decommissioning of Rights-of-Use and Easement

BSEE also proposes to revise the decommissioning regulations with respect to OCS facilities

used under RUE grants. These grants are similar to ROW grants for pipelines, but allow the

holder to construct, modify, or maintain platforms, artificial islands, facilities, installations, and

other devices on parcels for which it does not hold a lease authorizing development of that

parcel’s minerals. BOEM’s existing regulations, at 30 CFR 550.105, recognize “State lessees

granted a right-of-use and easement” within BOEM’s definition of “You” and provide that RUE

44

grant holders must comply with bonding obligations (see § 550.160(c)).6 BSEE’s existing

Subpart Q definition of “You” (see proposed § 250.1701 paragraph (d)) does not expressly

reference RUE grant holders. BSEE proposes to add such language to that definition and to

expressly include RUE grant holders as parties that can accrue decommissioning obligations.

These proposed changes to BSEE’s regulations would be consistent with BOEM’s current

practice of requiring applicants to accept decommissioning obligations as a term of RUE grants.

RUE grant holders are familiar with the facilities and equipment on their RUEs; and should be

able to decommission such infrastructure in a safe and environmentally sound manner. Most

have expressly agreed to accept those responsibilities in the RUE grant and in agreements with

those who owned the infrastructure when the location was leased. While the proposed revisions

would expressly extend decommissioning obligations to RUE grant holders, lessees that have

also accrued such obligations for facilities and equipment on the RUE would retain their joint

and several liability for satisfying those obligations under § 250.1701.

Accordingly, BSEE proposes to amend §§ 250.1700 and 250.1701 in Subpart Q to state that

RUE grant holders will accrue decommissioning obligations in the same way as lessees,

operating rights holders, and ROW grant holders. The proposed amendments would enhance the

completeness and transparency of Subpart Q and would better ensure that decommissioning of

facilities located on a RUE actually takes place in a timely manner.

C. Bonding Requirement for Appeals of Decommissioning Decisions and Orders

Part 290 of BSEE’s regulations allows parties adversely affected by a final BSEE order or

decision, including a decommissioning order or decision, to administratively appeal that decision

6 BOEM is also proposing to replace its existing definitions of “easement” and “right of use” in § 550.105 with a single definition of “right-of-use and easement.”

45

to the IBLA. Part 290 also lays out certain procedures for filing and pursuing such appeals.

While existing § 250.1409(b)(1) requires a party filing an appeal of a civil penalty order issued

by BSEE to post a surety bond pending the appeal, there is currently no such bonding

requirement for appeals of decommissioning orders. In the past, the absence of an express

bonding requirement for decommissioning appeals was of little or no practical consequence

because, when a current lessee or grant holder failed to perform its decommissioning obligations,

BSEE usually issued decommissioning orders to all jointly and severally liable predecessors at

the same time. Thus, even if one or more of the predecessors appealed such an order, it was

probable that other predecessors would perform the decommissioning on a timely basis.

However, under the proposed reverse chronological approach toward predecessors, it is

likely that each temporally related group of lessees or grant holders ordered to perform

decommissioning at any given point will be smaller in number than the entire set of “any or all

predecessors” ordered to decommission under BSEE’s current approach. The smaller number of

entities in any chronological group could increase the probability that performance of

decommissioning could be delayed by appeals from a predecessor or predecessors in that group,

or by a succession of appeals by later groups of predecessors (assuming that the IBLA grants a

requested stay of the decommissioning order pending the appeal).7 The reduced pool of lessees

or grant holders in the designated group of predecessors, and the potential for such resulting

delays, could exacerbate the possibility that the ultimately responsible party(ies) might default or

otherwise be unavailable or unable to perform decommissioning if the appeal is ultimately

unsuccessful. In such a case, BSEE might have difficulty ensuring that decommissioning will

7 Under existing § 290.7, a challenged order remains in effect pending the appeal, unless the IBLA, in its discretion, grants a stay, or BSEE agrees to a stay.

46

actually be performed on a timely basis, and without reliance on taxpayer funds, absent the

additional financial assurance provided by the proposed requirement to post a surety bond in

order to obtain a stay of a decision or order pending appeal.

For example, by the time an appeal has been filed and heard, and the decommissioning order

subsequently affirmed by the IBLA (and potentially thereafter by a federal court), several years

may have passed. During this time the appealing party may have lost its financial capacity to

fund or perform decommissioning. The proposed bond, however, would provide up-front

assurance that the appealing party will nevertheless meet its financial decommissioning

obligations if the appeal is denied. In the event that the appeal is denied and the appealing party

defaults, and no other viable predecessors exist at that point, BSEE could use the proceeds of the

forfeited bond to arrange for decommissioning without shifting that financial burden to the

public.

Further, even in cases where other predecessors do exist, the passage of time during the

appeal may create circumstances (e.g., deteriorating infrastructure) that require decommissioning

on an expedited basis to prevent adverse environmental or safety impacts or to avoid interference

with other uses of the OCS. The immediate availability of a forfeited bond from an appellant

that defaults after its appeal is denied would facilitate BSEE’s ability to ensure the timely

performance of decommissioning activities. In this manner, the proposed rule would allow

BSEE to use funds from forfeited bonds to arrange for immediate decommissioning without

having to re-start the process for holding additional parties responsible, which potentially could

be subject to similar risks of additional defaults and delays. In addition, the proposed bonding

requirement could deter a predecessor from filing an appeal that is frivolous, or designed solely

to delay performance.

47

Accordingly, to ensure that the decommissioning regulations fulfill all goals related to

Subpart Q without unnecessary cost to taxpayers, and to reduce the risks of deteriorating

financial capacity during the pendency of the appeal together with potential delays associated

with postponing pursuit of predecessors, BSEE proposes to amend its regulations to require any

predecessor who appeals a decommissioning order or decision to post a surety bond in order to

obtain a stay of that decision or order pending the appeal. The bond would be in an amount

deemed sufficient by BSEE to ensure that necessary decommissioning activities can be timely

performed if the appellant loses the appeal and defaults on its obligations.

VIII. Section-by-Section Analysis

A. Regulations Proposed by BSEE

BSEE proposes to revise the following regulations:

Part 250-OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER

CONTINENTAL SHELF

§ 250.105 Definitions

This proposed rule would amend § 250.105 by removing the terms and definitions for

“Easement” and “Right-of-use” and replacing them with a new term and definition for “Right-of-

Use and Easement.” The revision would make BSEE’s regulations consistent with BOEM’s,

providing a clear definition for the regulatory concept of a RUE as an authorization to use a

portion of the seabed not encompassed by the holder’s lease site in order to construct, modify, or

maintain platforms, artificial islands, facilities, installations, and other devices established to

support the exploration, development, or production of oil and gas, mineral, or energy resources

on the OCS or a State submerged lands lease.

48

§ 250.1700 What do the terms “decommissioning,” “obstructions,” and “facility” mean?

This proposed rule would revise the title of this section to include the term “predecessor,”

and would revise paragraph (a)(2) to include the area of an RUE, in addition to areas of a lease

and a pipeline ROW, among the areas that must be returned through decommissioning to a

condition that meets the requirements of BSEE and other agencies that have jurisdiction over

decommissioning activities. This revision aligns with the other proposed revisions to the

decommissioning obligations associated with RUEs. The proposed rule would also add a new

paragraph (d) defining the term “predecessor” to mean a prior lessee or owner of operating

rights, or a prior holder of a RUE grant or a pipeline ROW grant, that is liable for accrued

obligations on that lease or grant. This definition is designed to capture those entities, including

assignees, that remain liable for the decommissioning obligations that accrued during their prior

ownership of an interest in a lease, an RUE grant, or a pipeline ROW grant for purposes of the

proposed provisions establishing BSEE’s modified approach toward enforcement of such

obligations.

§ 250.1701 Who must meet the decommissioning obligations in this subpart?

This proposed rule would add a new paragraph (c) to this section and re-designate the

existing paragraph (c) as paragraph (d). The new paragraph (c) would clarify that all holders of a

RUE grant are jointly and severally liable, along with other liable parties, for meeting

decommissioning obligations on their RUE, including those pertaining to a well, pipeline,

platform, or other facility, or an obstruction, as the obligations accrue and until each obligation is

met. BSEE would also revise the current definition of the term “you” in existing paragraph (c),

which would become paragraph (d) under the proposed rule, to include RUE grant holders and

49

predecessors among the list of parties categorized as “you” or “I” for purposes of the Subpart Q

decommissioning regulations. These revisions are designed to ensure alignment between

§ 250.1701 and the other proposed revisions to Subpart Q.

§ 250.1702 When do I accrue decommissioning obligations?

This proposed rule would revise paragraph (e) to clarify that all holders of a ROW accrue the

obligation to decommission; re-designate paragraph (f) as paragraph (g); and add a new

paragraph (f) to provide that an entity accrues decommissioning obligations when it is or

becomes the holder of a RUE grant on which there is a well, pipeline, platform or other facility,

or an obstruction. These proposed changes are designed to implement the RUE

decommissioning principles discussed previously and to reflect BSEE practice related to

multiple ROW holders.

§ 250.1703 What are the general requirements for decommissioning?

This proposed rule would revise paragraph (e) to expand the current provision for clearing

obstructions to require that a RUE grant holder clear the seafloor of all obstructions created by its

RUE grant operations. This revision is designed to ensure alignment between § 250.1703 and

the other proposed revisions to Subpart Q, including the RUE decommissioning principles

discussed previously.

§ 250.1704 What decommissioning applications and reports must I submit and when must I

submit them?

This proposed rule would add a new paragraph (b) in the Table to provide that predecessors

must submit for BSEE approval, within 90 days of receiving a decommissioning order under

proposed § 250.1708, a decommissioning plan with a scope of work and schedule to address

50

wells, pipelines, and platforms. This proposed revision is designed to reflect the proposed

changes to § 250.1708 regarding decommissioning plans, discussed further below.

§ 250.1708 How will BSEE enforce accrued decommissioning obligations against

predecessors?

The proposed rule would add a new § 250.1708 (in place of the currently reserved § 250.1708).

Paragraph (a) of this section would provide that, when holding predecessors responsible for

performing accrued decommissioning obligations, BSEE will issue decommissioning orders to

such predecessors in reverse chronological order through the chain-of-title. BSEE would issue

such orders to groups of predecessors organized according to changes in the designated operator

over time, as well as to any predecessor who assigned interests to a party that has defaulted.

Proposed paragraph (b) would require predecessors to identify a single entity to begin

maintaining and monitoring any facility identified in the BSEE decommissioning order within 30

days of receiving the order. It would also require predecessors, within 60 days of receiving the

order, to designate a single entity as the operator for decommissioning operations. Further, within

90 days of receiving the order, the predecessors must submit a decommissioning plan that includes

the scope of work and projected decommissioning schedule for all wells, platforms and other

facilities, pipelines, and site clearance, as identified in the order. Finally, proposed paragraph (b)

would require the predecessor to perform the required decommissioning in the time and manner

specified by BSEE in its decommissioning plan approval.

Proposed paragraph (c) would specify that failure by a predecessor to comply with an order to

maintain and monitor a facility or to submit a decommissioning plan, as required in paragraph (b),

may result in various enforcement actions, including civil penalties and disqualification as an

operator.

51

Proposed paragraph (d) would allow BSEE to depart from the reverse chronological order

sequence, and to issue orders to any or all other predecessors for the performance of their

respective accrued decommissioning obligations, when: (1) none of the predecessors who had been

ordered to perform obtains approval of the decommissioning plan or executes the

decommissioning according to the approved decommissioning plan; (2) the Regional Supervisor

determines that there is an emergency condition, safety concern, or environmental threat, such as

improperly maintained and monitored facilities, leaking wells or vessels, sustained casing pressure

on wells, or lack of required valve testing; or (3) the Regional Supervisor determines that applying

the reverse chronological sequence would unreasonably delay decommissioning.

Proposed paragraph (e) would clarify that BSEE’s issuance of orders to additional predecessors

will not relieve any current lessee or grant holder, or any other predecessor, of its obligations to

comply with any prior decommissioning order or to satisfy its accrued decommissioning

obligations. Proposed paragraph (f) would provide that the appeal of any decommissioning order

does not prevent BSEE from proceeding against other predecessors pursuant to proposed

paragraph (d).

§ 250.1709 What must I do to appeal a BSEE final decommissioning decision or order

issued under this subpart?

BSEE’s proposed rule would replace existing § 250.1709 of Subpart Q (which is currently

reserved) with a new section that confirms the right of a lessee or grant holder to appeal a final

decommissioning order or decision issued under Subpart Q to the IBLA, in accordance with the

appeal procedures in existing part 290 of BSEE’s regulations. Proposed § 250.1709 would require,

in combination with proposed revisions to existing § 290.7(a)(2), that a lessee or grant holder

appealing a decommissioning decision or order must post a surety bond in an amount deemed by

52

BSEE to be adequate to ensure completion of decommissioning if the lessee or grant holder loses

its appeal and subsequently defaults on its obligation.

§ 250.1725 When do I have to remove platforms and other facilities?

This proposed rule would expand the first sentence of paragraph (a) to provide that a RUE

grant holder must remove all platforms and other facilities within 1 year after the RUE grant

terminates, unless the grant holder receives approval to maintain the structure to conduct other

activities. This proposed revision is designed to ensure alignment between § 250.1725 and the

other proposed revisions to Subpart Q regarding the RUE decommissioning principles discussed

previously.

PART 290—APPEAL PROCEDURES

§ 290.7 Do I have to comply with the decision or order while my appeal is pending?

The proposed rule would amend paragraph (a)(2) to provide that any person that appeals a

decommissioning decision or order must post a surety bond in order to seek to obtain a stay of

that decision or order, in accordance with proposed § 250.1709. This proposed revision is

designed to ensure alignment between § 290.7 and the proposed revision adding new § 250.1709

to Subpart Q.

B. Regulations Proposed by BOEM

BOEM is proposing to revise the following regulations:

Part 550-OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER

CONTINENTAL SHELF

SUBPART A—General

53

§ 550.105 Definitions.

The proposed rule would add a definition of “Issuer credit rating,” which is a newly defined

term in this part, for the reasons set forth above.

The proposed rule would also add a definition of “Predecessor,” which is another newly

defined term in this part. The definition would include those entities, including assignees, that

remain liable for the obligations that accrued during their prior ownership of an interest in a lease

(including the area now subject to a right-of-use and easement grant), a right-of-use and

easement grant, or a pipeline right-of-way grant. Those entities will be considered in BOEM’s

evaluation of a current grant holder’s ability to carry out accrued obligations.

BOEM would remove the terms “Easement,” and “Right-of-use,” neither of which is used

separately or applies to any approved activities on the OCS. In lieu of these two terms, and

consistent with the terms used in Part 550, BOEM would add the term and a corresponding

definition for “Right-of-Use and Easement.”

This proposed rule would also add a new term and definition for “Security” to list the various

methods that may be used to ensure compliance with OCS obligations.

BOEM would also revise the definition of the term “You” to include, depending on the

context of the regulations, a bidder, a lessee (record title owner), a sublessee (operating rights

owner), a right-of-use and easement grant holder, a pipeline right-of-way grant holder, a

predecessor, a designated operator or agent of the lessee or grant holder, or an applicant seeking

to become one of the above.

54

§ 550.160 When will BOEM grant me a right-of-use and easement, and what requirements

must I meet?

The proposed rule would revise the introductory text of this section to clarify that a right-of-

use and easement does not have to cover both leased and unleased lands, but rather, BOEM may

grant a right-of-use and easement on leased or unleased lands, or both. The paragraph (a)

introductory text would also be revised by substituting “or” for “and” to clarify that the right-of-

use and easement may be needed to construct or maintain facilities, but not necessarily both,

because the grant holder often uses a facility constructed by another, including either a

predecessor lessee or a predecessor grant holder.

BOEM also proposes to revise paragraph (b) to provide that a right-of-use and easement

grant holder must exercise the grant according to the terms of the grant and the applicable

regulations of part 550, as well as the requirements of part 250, subpart Q of this title.

BOEM also proposes to revise paragraph (c) to update the citation to BOEM’s lessee

qualification requirements, §§ 556.400 through 556.402, and to replace the authority that is cited

in this paragraph for requiring a bond with a cross reference to § 550.166(d), which BOEM also

proposes to revise to add specific criteria for such demands, as provided below.

§ 550.166 If BOEM grants me a right-of-use and easement, what surety bond or other

security must I provide?

The proposed rule would revise the section heading to read, “If BOEM grants me a right-of-

use and easement, what surety bond or other security must I provide?” so that the bonding and

additional security requirements of this section would apply, where specified, to both a right-of-

use and easement granted to serve a State lease and one serving an OCS lease.

55

Notwithstanding the change in the section heading to cover all rights-of-use and easement,

the requirement to furnish a $500,000 bond still applies only to right-of-use and easement grants

that serve State leases. Therefore, BOEM proposes to revise paragraph (a) of this section to

make clear it applies only to those grants.

BOEM also proposes to revise paragraph (b) of this section to add that the requirement to

provide a $500,000 surety bond may be satisfied if the operator of the right-of-use and easement

provides a surety bond in the required amount.

BOEM proposes to add paragraph (c) of this section to ensure that the general administrative

requirements for lease bonds also apply to the $500,000 surety bond required in paragraph (a) of

this section.

BOEM would also add paragraph (d) introductory text in this section to provide that, if

BOEM grants a right-of-use and easement that serves either an OCS lease or a State lease,

BOEM may require the grant holder to provide additional security to ensure compliance with the

obligations under any right-of-use and easement. For a right-of-use and easement grant that

serves a State lease, the required additional security would be any amount required above the

$500,000 base bond. Since BOEM does not require a standard base bond for a right-of-use and

easement grant that serves an OCS lease, the proposed additional security provisions would

authorize BOEM to require security.

BOEM proposes to add paragraph (d)(1) in this section to set forth the criteria BOEM would

use to evaluate the ability of a right-of-use and easement grant holder to carry out present and

future obligations and to determine whether BOEM should require additional security. BOEM

would use the same issuer credit rating or proxy credit rating criteria to evaluate a right-of-use

and easement grant holder as BOEM proposes to apply to lessees, i.e., that the Regional Director

56

may require a grant holder to provide additional security if the right-of-use and easement grant

holder does not have an issuer credit rating or a proxy credit rating that meets the criteria set

forth in § 556.901(d)(1). Similar to lessees, the vast majority of right-of-use and easement

holders are oil and gas companies and, therefore, BOEM would use the same financial criteria to

provide consistency in its analysis.

If the right-of-use and easement grant holder does not meet the criteria set forth in proposed

(d)(1) of this section, BOEM would review the obligations on each right-of-use and easement

grant held by that grant holder and determine whether to require additional security for each

grant. BOEM proposes to add paragraph (d)(2) to this section to provide that the Regional

Director may require a grant holder to provide additional security on a grant-by-grant basis if a

predecessor right-of-use and easement grant holder or a predecessor lessee liable for

decommissioning any facilities on the right-of-use and easement does not meet the issuer credit

rating or proxy credit rating criteria described above. Moreover, even if a predecessor meets the

credit rating or proxy credit rating criteria, the Regional Director may require the grant holder to

provide additional security for decommissioning obligations for which such a predecessor is not

liable.

BOEM also proposes to update the regulatory citation in existing § 550.166 (b)(1) and

incorporate that paragraph and citation into new paragraph (e)(1) to provide that the additional

security must meet the requirements for lease bonds or other security provided for in

§ 556.900(d) through (g) and § 556.902.

The proposed rule would also revise the provisions of existing 550.166 (b)(2) and incorporate

them into a new paragraph (e)(2) to ensure that any additional security would cover costs and

57

liabilities for decommissioning the facilities on the right-of-use and easement in accordance with

the regulations set forth in part 250, subpart Q of this title that apply to leases.

The proposed rule would also add new paragraph (f) to provide that if a right-of-use and

easement grant holder fails to replace a deficient bond or fails to provide additional security upon

demand, BOEM may assess penalties, request BSEE to suspend operations on the right-of-use

and easement, and initiate action for cancellation of the right-of-use and easement grant.

Subpart J—Pipelines and Pipeline Rights-of-Way

§ 550.1011 Bond or other security requirements for pipeline right-of-way grant holders.

The proposed rule would revise this section in its entirety. The section heading would be

revised to read, “Bond or other security requirements for pipeline right-of-way grant holders,” to

clarify that a pipeline right-of-way grant holder may meet the requirements of this section by

providing either a bond, mentioned in the existing regulation, or another form of security.

The proposed rule would also revise paragraph (a) to remove the reference to 30 CFR part

256, which has no bonding requirements, to add the word “pipeline” before “right-of-way,” and

add “grant” after “right-of-way” for clarification, and to provide that the areawide bond required

in paragraph (a) is to guarantee compliance with all the terms and conditions of all of the

pipeline right-of-way grants held in an OCS area, as defined in § 556.900(b). The proposed rule

would also remove the language, which states that the requirement to provide an areawide bond

for a pipeline right-of-way grant would be in addition to the bond coverage required in 30 CFR

part 556, as unnecessary because it is clear that an areawide bond provided for under Part 556

applies only to leases, not pipeline right-of-way grants. The provisions in Part 550 are

freestanding provisions that must be satisfied by a bond furnished under Part 550 instead of by a

bond furnished under Part 556. Existing paragraph (a)(2) would be removed because additional

58

security requirements would be covered by new paragraph (d). BOEM would also remove

paragraph (b), which defines the three recognized OCS areas, because it is made redundant by

the reference to § 556.900(b) in revised paragraph (a).

BOEM also proposes to add new paragraph (b) to provide that the requirement under

paragraph (a) to furnish and maintain an areawide bond may be satisfied if the operator or a co-

grant holder provides an areawide bond in the required amount.

BOEM also proposes to replace paragraph (c) with a provision stating that the requirements

for lease bonds in § 556.900(d) through (g) and § 556.902 apply to the areawide bond required in

paragraph (a) of this section. BOEM would remove existing paragraph (d), which would be

made redundant by this new paragraph (c).

BOEM would add paragraph (d) introductory text to provide that BOEM may determine that

additional security is necessary to ensure compliance with the obligations under a pipeline right-

of-way grant. BOEM would also add new paragraph (d)(1) to set forth the criteria BOEM would

use to evaluate the ability of a pipeline right-of-way grant holder to carry out present and future

obligations in order to determine whether BOEM should require additional security. No criteria

are specified in the existing regulations. Pursuant to this proposed rule, BOEM would use the

same issuer credit rating or proxy credit rating criteria to evaluate a pipeline right-of-way grant

holder as BOEM proposes to apply to lessees in 556.901(d). BOEM would use the same

financial criteria to provide consistency in its analysis.

Paragraphs (d)(2)(i) and (ii) would provide that, if the pipeline right-of-way grant holder does

not meet the criteria in paragraph (d)(1), the Regional Director may require the grant holder to

provide additional security on a grant-by-grant basis if there is no co-grant holder with an issuer

credit rating or a proxy credit rating that meets the criteria set forth in § 556.901(d)(1) nor

59

predecessor pipeline right-of-way grant holder liable for decommissioning any facilities on the

pipeline right-of-way that has an issuer credit rating or a proxy credit rating that meets the

criteria set forth in § 556.901(d)(1). Moreover, even if a predecessor meets the credit rating or

proxy credit rating criteria, the Regional Director may require the grant holder to provide

additional security for decommissioning obligations for which such a predecessor is not liable.

BOEM also proposes to provide, in new paragraph (e)(1), that the additional security must

meet the general requirements for lease bonds or other security provided in § 556.900(d) through

(g) and § 556.902.

The proposed rule would also provide, in new paragraph (e)(2), that any additional security

for a pipeline right-of-way would cover liabilities for regulatory compliance and

decommissioning, in accordance with the regulations set forth in part 250, subpart Q of this title.

The proposed rule would also add new paragraph (f) to provide that if a pipeline right-of-way

grant holder fails to replace a deficient bond or fails to provide additional security upon demand,

BOEM may assess penalties, request BSEE to suspend operations on the pipeline, and initiate

action for forfeiture of the pipeline right-of-way grant in accordance with 30 CFR 250.1013.

PART 556—LEASING OF SULFUR OR OIL AND GAS AND BONDING

REQUIREMENTS IN THE OUTER CONTINENTAL SHELF

The proposed rule would make a technical correction to the authority citation for part 556 by

removing the citation of 43 U.S.C. 1801-1802, which is erroneous because neither of these two

sections contains authority allowing BOEM to issue or amend regulations.

The proposed rule would also remove the citation to 43 U.S.C. 1331 note, which is where the

Gulf of Mexico Energy Security Act of 2006 is set forth. While this statute required BOEM to

issue regulations concerning the availability of bonus or royalty credits for exchanging eligible

60

leases, the deadline for applying for such a bonus or royalty credit was October 14, 2010;

therefore, lessees may no longer apply for such credits. BOEM no longer needs the authority to

issue regulations under this statute and has removed all regulations on this topic from Part 556,

except for § 556.1000, which provides that lessees may no longer apply for such credits.

Subpart A -- General Provisions

§ 556.105 Acronyms and definitions.

The proposed rule would add a definition of “Issuer credit rating,” which is a newly defined

term in this part, for the reasons set forth above.

This proposed rule would add a new term and definition for “Predecessor.” This definition

would include those entities, including assignees, that, because of their prior ownership of an

interest in a lease, including record title and operating rights interests, remain liable for

obligations that accrued during their ownership. Those entities would be considered in BOEM’s

evaluation of a current lessee’s ability to carry out accrued obligations. This definition would be

the same as the definition of “Predecessor” proposed for § 550.105.

The proposed rule would also revise the definition of “Right-of-Use and Easement (RUE)” to

remove the acronym “(RUE)” and to include the words “to construct, modify or maintain

platforms.” This definition would be the same as the definition of “Right-of-Use and Easement”

proposed for § 550.105.

The proposed rule would also replace the definition for “Security or securities” with a

definition for “Security” to clarify the various methods that can be used to ensure compliance

with OCS obligations. This definition would be the same as the definition of “Security”

proposed for § 550.105.

61

The proposed rule would also revise the definition of the term “You” to include, depending

on the context of the regulations, a bidder, a lessee (record title owner), a sublessee (operating

rights owner), a right-of-use and easement grant holder, a pipeline right-of-way grant holder, a

predecessor, a designated operator or agent of the lessee or grant holder, or an applicant seeking

to become one of the above.

SUBPART I—Bonding or Other Financial Assurance

§ 556.900 Bond or other security requirements for an oil and gas or sulfur lease.

The proposed rule would revise the section heading to read, “Bond or other security

requirements for an oil and gas or sulfur lease.”

The proposed rule would revise paragraph (a) introductory text to add the words “or

sublease” after the word “assignment” to reflect that the transfer of operating rights from a

record title owner creates a sublease. The proposed rule would also add the words “interest in

an” before the words “existing lease” because an assignment or transfer under Subparts G and H

of this part may include less than the entire lease. The proposed rule would also revise paragraph

(a) introductory text to clarify that record title owners and operating rights owners for the lease

are equally obligated to maintain a bond in the required amount.

BOEM also proposes to revise paragraphs (a)(2) and (3) to change the spelling of “area-

wide” to “areawide” for consistency with the spelling of this word in other sections of this part.

The proposed rule would also revise paragraph (g) introductory text to add the word “surety”

before “bond” in two places to clarify that the regulation is referring to a “surety bond.”

The proposed rule would revise paragraph (h) introductory text to replace the words “bond

coverage” with “security” for consistency in terminology. The proposed rule would also revise

62

paragraph (h)(2) to clarify that BSEE, rather than BOEM, is the agency with authority to suspend

production or other operations on a lease.

§ 556.901 Bonds and additional security.

The proposed rule would revise the section heading to read, “Bonds and additional security,”

because this section covers both base bond and additional security requirements.

The proposed rule would also revise paragraph (a)(1)(i) introductory text to insert the words

“lease exploration” before “bond” for consistency with the terminology used in paragraph

(a)(1)(ii).

The proposed rule would also revise paragraph (c) to remove the words “authorized officer”

and replace them with “Regional Director,” and remove the words “lease bond coverage” and “a

lease surety bond” and replace them in each instance with “security” to clarify that the Regional

Director can review whether BOEM would be adequately secured by a surety bond, or another

type of security, for an amount less than the amount prescribed in paragraph (b)(1), but not less

than the estimated cost for decommissioning.

BOEM proposes to revise paragraph (d) introductory text to combine the provisions of the

existing paragraph (d) introductory text and the existing introductory paragraph (d)(1) to provide

that the Regional Director may determine that additional security is necessary to ensure

compliance with the obligations under a lease based on an evaluation of the lessee’s ability to

carry out present and future obligations on the lease and that the Regional Director may require a

lessee to provide additional security if the lessee does not meet at least one of the criteria

provided below.

BOEM proposes to add new paragraph (d)(1) to set forth the criteria BOEM would use to

evaluate the ability of a lessee to carry out present and future obligations. BOEM would use an

63

issuer credit rating from a nationally recognized statistical rating organization (NRSRO), as

defined by the United States Securities and Exchange Commission (SEC), greater than or equal

to either BB- from Standard & Poor’s Ratings Service or Ba3 from Moody’s Investor Service, or

a proxy credit rating determined by the Regional Director based on audited financial information

(including an income statement, balance sheet, statement of cash flows, and the auditor's

certificate) greater than or equal to either BB- from Standard & Poor’s Ratings Service or Ba3

from Moody’s Investor Service.

BOEM proposes to add new paragraph (d)(2) to set forth the criteria BOEM would use if the

lessee does not meet the criteria in paragraph (d)(1). The Regional Director may require a lessee

to provide additional security on a lease-by-lease basis if no co-lessee has an issuer credit rating

or proxy credit rating criteria that meets the criteria set forth in paragraph (d)(1); there are no

proved oil and gas reserves on the lease, as defined by the SEC at 17 CFR 210.4-10(a)(22), the

net present value of which exceeds three times the cost of the decommissioning (as estimated by

BSEE) associated with the production of those reserves; and no predecessor lessee liable for

decommissioning any facilities on the lease has an issuer credit rating or a proxy credit rating

that meets the criteria set forth in paragraph (d)(1). Moreover, even if a predecessor meets the

credit rating or proxy credit rating criteria, the Regional Director may require the lessee to

provide additional security for decommissioning obligations for which such a predecessor is not

liable.

BOEM proposes to redesignate existing paragraph (d)(2) as paragraph (e) and revise it to

provide that a lessee may satisfy the Regional Director’s demand for additional security either by

increasing the amount of its existing bond or by providing additional bonds or other security.

64

BOEM proposes to redesignate existing paragraphs (e) and (f) as paragraphs (f) and (g),

respectively, and revise them to remove the word “bond” and replace it with “security,” a term

that includes a surety bond or another type of security.

§ 556.902 General requirements for bonds or other security.

The proposed rule would revise the section heading to read, “General requirements for bonds

or other security,” to recognize that other types of security, such as a pledge of Treasury

securities, may be provided under part 556.

The proposed rule would also revise paragraph (a) to include “grant holder” and to include

bonds provided under 30 CFR Part 550. These revisions clarify that the same general

requirements for bonds provided by lessees, operating rights owners, or operators of leases, also

apply to bonds provided by right-of-use and easement grant and pipeline right-of-way grant

holders.

The proposed rule would also revise paragraph (e)(2) to clarify that the use of Treasury

securities, instead of a bond, requires a pledge of Treasury securities, as provided in

§ 556.900(f).

§ 556.903 Lapse of bond.

The proposed rule would revise paragraph (a) to reference a new bond “or other security”

consistent with the terminology used throughout this subpart and to include references to the

bond and other security regulations for right-of-use and easement grants and pipeline right-of-

way grants to ensure that these grants are covered by the provisions of this section. The

proposed rule would also revise paragraph (a) by removing the words “terminates immediately”

and substituting “must be replaced.”

65

BOEM also proposes to revise the first sentence of paragraph (b) by inserting “or financial

institution” after “guarantor.” BOEM also proposes to revise the third sentence of paragraph (b)

for consistency in terminology by inserting the words “or other security” after the word “bonds”

and inserting the words “guarantor or financial institution” after the word “surety” so that this

section would apply to a third-party guarantor and a financial institution where a

decommissioning account is held.

§ 556.904 Decommissioning accounts.

The proposed rule would revise the section heading to read, “Decommissioning accounts,” in

accordance with BOEM policy and accepted terminology used in the industry. The words

“lease-specific” would be removed throughout this section so that a decommissioning account

could be used in lieu of a bond for a lease or several leases, a right-of-use and easement grant or

a pipeline right-of-way grant, or a combination thereof.

BOEM proposes to revise paragraph (a) to remove the term “lease-specific” and replace it

with “decommissioning,” and to add references to the bonding and other security regulations for

right-of-use and easement grants and pipeline right-of-way grants, consistent with the changes

above. The paragraph (a) introductory text would also be revised to provide that BOEM would

authorize a lessee or grant holder to establish a decommissioning account at a federally insured

financial institution. The proposed rule would also delete the reference to paragraph (a)(3),

which is being revised and is no longer relevant to withdrawal of funds from a decommissioning

account.

The proposed rule would revise paragraph (a)(1) to remove the words “and pledged” and to

provide that funds in the account must be payable to BOEM if BOEM determines the lessee or

grant holder has failed to meet its decommissioning obligations.

66

The proposed rule would also revise paragraph (a)(2) to remove the words “as estimated by

BOEM” to clarify that BOEM does not estimate decommissioning costs, but rather uses the

estimates of decommissioning costs determined by BSEE. The proposed rule would also revise

paragraph (a)(2) to require funding of a decommissioning account pursuant to the schedule that

the Regional Director prescribes.

The proposed rule would revise paragraph (a)(3) to remove the requirement to provide

binding instructions to purchase Treasury securities for a decommissioning account, which is

currently BOEM’s policy. The proposed rule would replace the existing language with a new

provision providing that if you fail to make the initial payment or any scheduled payment into

the decommissioning account, you must immediately submit, and subsequently maintain, a bond

or other security in an amount equal to the remaining unsecured portion of your estimated

decommissioning liability. This change reflects BOEM’s current policy to order bond or other

security in the event the payments into the decommissioning account are not timely made.

The proposed rule would revise paragraph (b) by removing “lease-specific” and substituting

“decommissioning.”

The proposed rule would also remove paragraphs (c) and (d), which concern the use of

pledged Treasury securities to fund a decommissioning account. Because of this revision,

existing paragraph (e) would be redesignated as paragraph (c), which BOEM proposes to revise

to remove the word “pledged” and to provide that BOEM may require a lessee to create an

overriding royalty or production payment obligation for the benefit of an account established as

security for the decommissioning of a lease.

§ 556.905 Third-party guarantees.

67

The proposed rule would revise the section heading to read, “Third-party guarantees.”

BOEM also proposes to revise paragraph (a) to add the words “or other security” after the words

“additional bond” and to reference § 550.166(d) and § 550.1011(d) to clarify that a third-party

guarantee may be used instead of an additional bond or other security required under §

550.166(d) for right-of-use and easement grants, § 550.1011(d) for pipeline right-of-way grants,

or § 556.901(d) for leases.

BOEM would also revise paragraph (a)(1) to clarify that the guarantor, not the guarantee,

must meet the criteria in paragraph (c) and would revise paragraph (a)(2) to require the guarantor

to submit a third-party guarantee agreement containing each of the provisions in paragraph (d) of

this section. As discussed below, paragraph (d) is being revised to provide that the terms

previously required for indemnity agreements must be included in a third-party guarantee

agreement. This terminology is changed to avoid any inference that the government must incur

the expenses of decommissioning before being indemnified by the guarantor. The proposed rule

would also remove paragraphs (a)(3) and (a)(4), which have been superseded by other revisions

to this section.

The proposed rule would revise paragraph (b) introductory text to remove references to

paragraphs (a)(3) and (c)(3) of this section because the criteria in these two paragraphs have been

superseded. The proposed rule would replace these references with a reference to paragraph (c)

as proposed to be revised. Because the cessation of production is neither desirable nor easily

accomplished by an operator, the proposed rule would also revise paragraph (b)(2) to remove the

requirement that, when a guarantor becomes unqualified, you must “cease production until you

comply with the bond coverage requirements of this subpart.” Instead, the language would be

68

revised to provide that you must “immediately submit and maintain a bond or other security

covering those obligations previously secured by the third-party guarantee.”

The proposed rule would revise paragraph (c) to clarify that BOEM will use an issuer credit

rating or proxy credit rating to evaluate a third-party guarantor, and would remove the

requirement that a third-party guarantee ensure compliance with all the obligations of all lessees,

all operating rights owners, and operators on the lease.

The proposed rule would revise paragraph (d)(1) introductory text to read “if you fail to

comply with the terms of any lease or grant covered by the guarantee, or any applicable

regulation, your guarantor must either:” to be consistent with the revision of paragraph (a) to

allow the use of a third-party guarantee for a right-of-use and easement grant or a pipeline right-

of-way grant and to be consistent with the revision to remove language from paragraph (c) to

allow a guarantor to limit the obligations covered by a guarantee.

The proposed rule would remove subparagraph (d)(2) to be consistent with the revision to

remove language from paragraph (c) to allow a guarantor to limit the obligations covered by a

guarantee. As a result, existing paragraph (d)(3) would be redesignated as paragraph (d)(2) and

paragraph (d)(4) would be redesignated as paragraph (d)(3).

The proposed rule would revise redesignated subparagraphs (d)(2)(ii) and (d)(2)(iii) to

remove the words “your guarantor’s” and replace them with the word “the” to clarify that

redesignated paragraph (d)(2) applies to the guarantee itself.

The proposed rule would revise new paragraph (d)(3) to replace the term “a suitable

replacement security” with “acceptable replacement security” for clarity.

69

The proposed rule would also add a new paragraph (d)(4) to provide that BOEM may cancel

a third-party guarantee under the same terms and conditions as those proposed for cancellation of

additional bonds and return of pledged security in § 556.906(d)(2) and § 556.906(e).

BOEM also proposes to add new paragraphs (d)(5) through (d)(10) to revise and incorporate

all of the provisions of existing paragraph (e), which would be removed.

§ 556.906 Termination of the period of liability and cancellation of a bond.

The proposed rule would revise the wording in paragraphs (b) and (d) of this section to cite

the bonding regulations for right-of-use and easement grants and pipeline right-of-way grants to

ensure that they are covered under the terms of this section.

The proposed rule would revise paragraph (b)(1) to remove the word “terminated” in two

instances and replace it with “cancelled” to be consistent with paragraph (b) introductory text,

which provides that the Regional Director will cancel your previous bond when you provide a

replacement bond, subject to the conditions provided in paragraphs (b)(1) through (3). BOEM

would also remove the word “for” before “by the bond” in paragraph (b)(1) for grammatical

reasons.

The proposed rule would revise paragraph (b)(2) to reference § 550.166(a) and § 550.1011(a)

and would revise paragraph (b)(3) to reference § 550.166(d) and § 556.1011(d). BOEM also

proposes to revise paragraph (b)(3) to clarify that the notification required under this section is to

the surety providing the new additional bond.

The proposed rule would revise the paragraph (d) introductory text to cover bond

cancellations and return of pledged security, and would remove the middle column of the table

entitled, “The period of liability will end,” because it is redundant with provisions of paragraphs

(a), (b) and (c).

70

In paragraph (d)(1), in the column in the table entitled, “For the following type of bond,”

BOEM proposes to remove the words “type of bond” at the top of the table so that this paragraph

would apply to bonds or other security, as applicable. Paragraph (d)(1) would also be revised to

include a reference to base bonds submitted under § 550.166(a) and § 550.1011(a). BOEM

would also revise paragraph (d)(2) in the same column to include a reference to bonds submitted

under § 550.166(d) and § 550.1011(d).

The proposed rule would revise paragraph (d)(2) in the column entitled, “Your bond will be

cancelled,” to read, “Your bond will be reduced or cancelled or your pledged security will be

returned,” to clarify that the bonds may be reduced or cancelled and a pledged security, or a

portion thereof, may be returned, and to specify other circumstances under which the Regional

Director may cancel additional bonds or return a pledged security. While the existing criteria

identify most instances when cancellation of a bond is appropriate, occasionally there are other

circumstances where cancellation would be warranted. The proposed rule would allow bond

cancellation, at any time, when BOEM determines, using the criteria set forth in § 556.901(d), or

§ 550.166(d) or § 550.1011(d), as applicable, that a lessee or grant holder no longer needs to

provide the additional bond for its lease, right-of-use and easement grant, or pipeline right-of-

way grant; when the operations for which the bond was provided ceased prior to accrual of any

decommissioning obligation; and when cancellation of the bond is appropriate because BOEM

determines such bond never should have been required under the regulations.

The proposed rule would revise introductory paragraph (e) to remove the words “or release”

because the term “release” is undefined and not used in practice. Likewise, the proposed rule

would remove the words “or released” from paragraph (e)(2).

71

The proposed rule would also revise paragraph (e) to reference right-of-use and easement

grants and pipeline right-of-way grants to provide that the Regional Director may reinstate the

bonds on the same grounds as currently provided for reinstatement of lease bonds.

§ 556.907 Forfeiture of bonds or other securities.

The proposed rule would revise the section heading to read, “Forfeiture of bonds or other

securities” because the use of “and/or” may be ambiguous. The proposed rule would revise

paragraph (a)(1) to include bonds or other security for right-of-use and easement grants and

pipeline right-of-way grants, in addition to leases, in the forfeiture provisions of this section.

BOEM also proposes to clarify that the Regional Director may call for forfeiture of all or part of

a bond or other form of security, or demand performance from a guarantor, if the party who

provided the bond refuses or is unable to comply with any term or condition of a lease, a right-

of-use and easement grant, or a pipeline right-of-way grant, as well as “any applicable

regulation.” Throughout this section, BOEM proposes to add references to a grant, a grant

holder, and grant obligations to implement the revisions in paragraph (a)(1).

BOEM proposes to revise paragraph (b) to include bonds or other security so that BOEM

may pursue forfeiture of a bond or other security.

BOEM proposes to revise paragraph (c)(1) to include “financial institution holding your

decommissioning account” as one of the parties the Regional Director would notify of a

determination to call for forfeiture of a bond, security, or guarantee because a bank or other

financial institution may hold funds subject to forfeiture.

The proposed rule would revise the wording of paragraph (c)(1)(ii) and paragraph (d) for

clarity.

72

BOEM proposes to revise paragraph (c)(2)(ii) to add the words “even if the cost of

compliance exceeds the limit of the guarantee” after the word “prescribes” to be consistent with

the revisions to § 556.905, which would allow a guarantor to guarantee less than all obligations

of all lessees, grant holders or operators.

BOEM proposes to revise paragraph (f)(1) to include “grant” as well as lease. BOEM also

proposes to revise paragraph (f)(2) to clarify that BOEM may recover additional costs from a

third-party guarantor only to the extent covered by the guarantee. This would be consistent with

the changes made to § 556.905 to allow the use of limited third-party guarantees.

This rulemaking would also reword paragraph (g) for clarity.

IX. Additional Comments Solicited by BOEM and BSEE

BOEM requests comments on how the proposed rule would affect existing contracts and

agreements with respect to responsibility for decommissioning liabilities and other lease

obligations.

BSEE requests comments on whether, as some stakeholders have asserted, issuing

decommissioning orders first to the predecessors nearest in time to the current lessees or grant

holders would have positive safety and environmental impacts because the most recent

predecessors should be more familiar with the current circumstances at a decommissioning site

than more remote predecessors. BSEE also requests comments on any other potential effects of

the proposed changes on the timely and effective completion of decommissioning.

X. Procedural Matters

A. Regulatory Planning and Review (E.O. 12866, 13563 and 13771)

73

E.O. 12866 provides that the Office of Information and Regulatory Affairs (OIRA) in the

Office of Management and Budget (OMB) will review all significant rules. OIRA has reviewed

this proposed rule and determined that it is a significant action E.O. 12866.

E.O. 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the

Nation’s regulatory system to promote predictability, to reduce uncertainty, and to use the best,

most innovative, and least burdensome tools for achieving regulatory ends. The E.O. directs

agencies to consider regulatory approaches that reduce burdens and maintain flexibility and

freedom of choice for the public where these approaches are relevant, feasible, and consistent

with regulatory objectives. E.O. 13563 emphasizes that regulations must be based on the best

available science and that the rulemaking process must allow for public participation and an open

exchange of ideas. BOEM has developed this rule in a manner consistent with these

requirements.

E.O. 13771 requires Federal agencies to take proactive measures to reduce the costs

associated with complying with Federal regulations. BOEM and BSEE have evaluated this

rulemaking based on the requirements of E.O. 13771. BOEM’s proposed changes are estimated

to reduce the private cost to lessees in the form of bonding premiums. BSEE’s proposed cost

changes are not estimated; but are expected to provide regular and continuous benefits and

infrequent costs. Each agency has drafted an Initial Regulatory Impact Analysis (IRIA) detailing

the estimated impacts of its respective provisions of this joint proposed rule. These reflect both

monetized and non-monetized impacts, the costs and benefits of which are discussed

qualitatively in each document. Both BOEM and BSEE’s IRIAs are available in the public

docket for this rulemaking. Overall, important aspects of this rule (e.g., regulatory clarifications,

74

refined procedures and reduced bonding requirements) make this rulemaking an E.O. 13771

deregulatory action.

BOEM expects this proposed rule to reduce the private cost to lessees through lower bonding

premiums. The table below summarizes BOEM’s estimate of the decrease in bonding premiums

paid by lessees over a 10-year and 20-year time horizon. Additional information on the

estimated transfers, costs, and benefits can be found in the IRIA posted in the public docket for

this proposed rule.

Total Estimated Decrease in Bonding Premiums Associated with BOEM’s Proposed

Amendments (2018$)

Year Discounted at 3% Discounted at 7% 10 Year Annualized $16,584,362 $16,473,168

10 Year NPV $141,467,969 $115,700,639 20 Year Annualized $17,191,929 $16,988,417

20 Year NPV $255,772,485 $179,975,527

B. Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires agencies to analyze the economic

impact of regulations when a significant economic impact on a substantial number of small

entities is likely and to consider regulatory alternatives that will achieve the agency’s goals while

minimizing the burden on small entities. BOEM and BSEE each provide an Initial Regulatory

Flexibility Analysis (IRFA), which assesses the impact of this proposed rule on small entities.

Each of these are in their respective IRIAs available in the public docket for this rule.

As defined by the Small Business Administration (SBA), a small entity is one that is

“independently owned and operated and which is not dominant in its field of operation.” What

75

characterizes a small business varies from industry to industry. The proposed rule would affect

OCS lessees and right-of-use and easement grant and pipeline right-of-way grant holders on the

OCS. The analysis shows that this includes roughly 555 companies with ownership interests in

OCS leases and grants. Entities that would operate under this proposed rule are classified

primarily under North American Industry Classification System (NAICS) codes 211120 (Crude

Petroleum Extraction), 211130 (Natural Gas Extraction) and 486110 Pipeline Transportation of

Crude Oil and Natural Gas. For NAICS classifications 211120 and 211130, the Small Business

Administration (SBA) defines a small business as one with fewer than 1,250 employees; for

NAICS code 486110, it is a business with fewer than 1,500 employees. Based on this criterion,

approximately 386 (70 percent) of the businesses operating on the OCS, subject to this proposed

rule, are considered small; the remaining businesses are considered large entities.

The analysis shows that there are about 386 small companies with active operations or

ownership interests on the OCS. All of the operating businesses meeting the SBA classification

are potentially impacted; therefore, BOEM and BSEE expect that the proposed rule would affect

a substantial number of small entities.

The BOEM portion of this proposed rule is a deregulatory action. BOEM has estimated the

annualized decrease in private cost to lessees and allocated those savings to small and large

entities based on their decommissioning liabilities. BOEM’s analysis concludes small

companies would realize 23 percent ($3.3 million) of the decrease in private costs to lessees from

its proposed changes and large companies 77 percent ($10.7 million). The agencies recognize

that there may be incremental cost burdens to some affected small entities, but the proprietary

data is not available for the agencies to estimate those costs. The agencies are seeking specific

comment and feedback from affected small entities on the costs associated with this rulemaking.

76

BSEE concludes its proposed changes would not result in any incremental change to the

existing burdens of small entities because, if they accrued decommissioning liability, they remain

liable for decommissioning under both current regulations and these proposed regulations, given

that the joint and several liability would remain the same. Additional information about these

conclusions can be found in each bureau’s respective IRFA for this proposed rule.

Estimated Annual Decrease in Private Cost for Small and Large Lessees (2018, $thousands)

Credit Rating Large Co. Small Co. Grand Total BB- and above $10,665 $1,631 $12,296 B+ and below $40 $1,652 $1,691 Grand Total: $10,705 $3,283 $13,987

The proposed changes are designed to balance the risk of non-performance with the costs and

disincentives to production that are associated with the requirement to provide additional

security. BOEM and BSEE believe the proposed action would strongly protect the public from

incurring decommissioning costs and minimize the financial assurance burden on small entities.

C. Small Business Regulatory Enforcement Fairness Act

This proposed rule would revise the financial assurance requirements for OCS lessees and

grant holders, and would reduce the number of circumstances in which financial assurance will

be required. The changes would not have any negative impact on the economy or any economic

sector, productivity, jobs, the environment, or other units of government. BOEM’s proposed

changes would 1) modify the evaluation process for requiring additional security, 2) streamline

the evaluation criteria, and 3) remove restrictive provisions for third-party guarantees and

decommissioning accounts. BSEE’s proposed changes would 1) clarify interested parties’

decommissioning liabilities, and 2) provide industry with more explicit decommissioning

compliance expectations. These changes reflect the risk mitigation provided by BOEM’s and

77

BSEE’s joint and several liability regulation, better align the evaluation criteria with industry

practices, reduce bonding cost for industry, and provide greater certainty to industry on fulfilling

accrued decommissioning obligations while continuing to protect the public from exposure to

financial obligations and liabilities arising from noncompliant OCS exploration and

development.

Accordingly, this proposed rule is not a major rule under 5 U.S.C. § 804(2), the Small

Business Regulatory Enforcement Fairness Act, because implementation of this rule will not:

(a) have an annual effect on the economy of $100 million or more;

(b) cause a major increase in costs or prices for consumers, individual industries, Federal,

State, or local government agencies, or geographic regions; or

(c) result in significant adverse effects on competition, employment, investment,

productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based

enterprises.

D. Unfunded Mandates Reform Act of 1995

This proposed rule does not impose an unfunded mandate on State, local, or tribal

governments, or the private sector of more than $100 million per year. This rule does not have a

significant or unique effect on State, local, or tribal governments or the private sector.

Moreover, the proposed rule would not have disproportionate budgetary effects on these

governments. BOEM and BSEE have also determined that this proposed rule would not impose

costs on the private sector of more than $100 million in a single year. A statement containing the

information required by the Unfunded Mandates Reform Act (2 U.S.C. § 1531 et seq.) is not

required and BOEM and BSEE have chosen not to prepare such a statement.

E. Takings Implication Assessment (E.O. 12630)

78

This proposed rule does not affect a taking of private property or otherwise have takings

implications under E.O. 12630. Therefore, a takings implication assessment is not required.

F. Federalism (E.O. 13132)

Under the criteria in section 1 of E.O. 13132, this proposed rule does not have sufficient

federalism implications to warrant the preparation of a federalism summary impact statement.

Therefore, a federalism summary impact statement is not required.

G. Civil Justice Reform (E.O. 12988)

This proposed rule complies with the requirements of E.O. 12988. Specifically, this rule:

(a) Meets the criteria of section 3(a) requiring that all regulations be reviewed to eliminate

errors and ambiguity and be written to minimize litigation; and

(b) Meets the criteria of section 3(b)(2) requiring that all regulations be written in clear

language and contain clear legal standards.

H. Consultation with Indian Tribes (E.O. 13175 and Departmental Policy) (OEP to

advise)

BOEM and BSEE strive to strengthen their government-to-government relationships with

American Indian and Alaska Native Tribes through a commitment to consultation with the tribes

and recognition of their right to self-governance and tribal sovereignty. We are also respectful of

our responsibilities for consultation with Alaska Native Claims Settlement Act (ANCSA)

Corporations. We have evaluated the proposed rule under the Department of the Interior’s

consultation policy, under Departmental Manual Part 512, Chapters 4 and 5, and under the

criteria in E.O. 13175 and determined that, while there are no substantial direct effects on

environmental or cultural resources, there may be economic impacts to one Indian tribe and one

ANCSA Corporation. BOEM has invited consultation with the Indian tribe and the ANCSA

79

Corporation to discuss possible impacts and to solicit and fully consider their views on the

proposed rulemaking.

I. Paperwork Reduction Act (PRA)

This proposed rule contains existing and new information collection (IC) requirements for

both BSEE and BOEM regulations, and a submission to the OMB for review under the

Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) is required. Therefore, an IC request

for each Bureau is being submitted to OMB for review and approval. BSEE and BOEM are

seeking to renew and extend IC requests for each OMB control number listed below for three

years from approved date. We may not conduct or sponsor and you are not required to respond

to a collection of information unless it displays a currently valid Office of Management and

Budget (OMB) control number. The OMB has reviewed and approved the information

collection requirements associated with risk management, financial assurances, and loss

prevention and assigned the following OMB control numbers:

● 1014–0010 (BSEE), “30 CFR 250, Subpart Q - Decommissioning Activities” (expires

04/30/2023, and in accordance with 5 CFR 1320.10, an agency may continue to conduct or

sponsor this collection of information while the submission is pending at OMB),

● 1010-0006 (BOEM), “Leasing of Sulfur or Oil and Gas in the Outer Continental Shelf

(30 CFR parts 550, Subpart J; 556, Subparts A through I, and K; and 560, Subparts B and E)

(expires 01/31/2023), and

● 1010-0114 (BOEM), “30 CFR 550, Subpart A, General, and Subpart K, Oil and Gas

Production Requirements (expires 02/28/2023).

The IC aspects affecting each Bureau are discussed separately. Instructions on how to

comment follow those discussions.

80

BSEE Information Collection—30 CFR Parts 250 and 290

This proposed rule would add new collections of information under regulations at 30 CFR

Part 250, Subpart Q, concerning the decommissioning regulatory requirements related to oil, gas,

and sulphur operations in the OCS. These regulatory requirements are the subject of this

collection.

The new information collection requirements identified below require approval by OMB.

BSEE uses the information collected under the Subpart Q regulations to ensure that operations

on the OCS are carried out in a safe and environmentally protective manner, do not interfere with

the rights of other users on the OCS, and balance the conservation and development of OCS

resources. The following proposed regulatory changes would affect the annual burden hours;

however, they would not impact non-hour cost burdens.

The proposed rule would clarify decommissioning responsibilities, including those

requirements for RUE grants, and would establish an order in which predecessor lessees or grant

holders would be ordered to decommission OCS facilities when the current owner of the lease or

grant fails to do so. When holding predecessors responsible for the performance of accrued

decommissioning obligations, BSEE proposes to issue decommissioning orders to predecessors

in reverse chronological order through the chain-of-title, organized in groups by designated

operator(s).

This proposed rule would require predecessors to submit a work plan and schedule as

directed under proposed §§ 250.1704(b) and 250.1708. Given the potentially lengthy process of

holding predecessors responsible, BSEE would establish a step early in the process for the

predecessors to submit decommissioning plans. BSEE considers this necessary to protect the

public from incurring future decommissioning costs and to prevent safety and environmental

81

risks posed by delayed performance of decommissioning. Within 90 days of receiving an order

to perform decommissioning under proposed § 250.1708(a), the predecessor would be required

to submit a work plan and projected decommissioning schedule that addresses all wells,

platforms and other facilities, pipelines, and site clearance. This proposed requirement would

add an estimated 4,320 annual burden hours to the existing OMB control number (+4,320 annual

burden hours).

Title of Collection: Revisions to Regulations under 30 CFR part 250, Subpart Q –

Decommissioning.

OMB Control Number: 1014-0010.

Form Number: None.

Type of Review: Revision of a currently approved collection of information.

Respondents/Affected Public: Currently there are approximately 60 Oil and Gas Drilling and

Production Operators in the OCS. Not all the potential respondents would submit information at

any given time, and some may submit multiple times.

Total Estimated Number of Annual Respondents: Not all of the potential respondents will

submit information in any given year and some may submit multiple times.

Total Estimated Number of Annual Responses: 3,248 responses.

Total Estimated Number of Annual Burden Hours: 15,997 hours.

Respondent’s Obligation: Mandatory.

Frequency of Collection: Submissions are generally on occasion.

Total Estimated Annual Nonhour Burden Cost: $1,143,556.

82

BURDEN TABLE [New requirements due to the proposed rule shown in bold; Changes to existing

requirements due to the proposed rule are italicized.] L/T = Lease Term Burden Breakdown ROW = Right of Way

Citation 30 CFR part 250

Subpart Q

Reporting Requirement* Hour

Burden

Average No. of

Annual Responses

Annual Burden Hours

(Rounded)

Non-Hour Cost Burdens General

1704(h); 1706(a), (f); 1712; 1715; 1716; 1721(a),(d), (f)- (g); 1722(a), (b), (d); 1723(b); 1743(a); Sub G

These sections contain references to information, approvals, requests, payments, etc., which are submitted with an APM, the burdens for which are covered under its own information collection.

APM burden covered under 1014-0026

1700 thru 1754

General departure and alternative compliance requests not specifically covered elsewhere in Subpart Q regulations.

Burden covered under Subpart A 1014-0022

0

1703; 1704 Request approval for decommissioning. Burden included below 0 1704(b); 1708

Submit work plan & schedule under § 250.1708(b) that addresses all wells, platforms and other facilities, pipelines, and site clearance upon receiving an order to perform decommissioning; additional information as requested by BSEE.

1,440 3 submittals 4,320

1704(j), (k) Submit to BSEE, within 120 days after completion of each decommissioning activity (including pipelines), a summary of expenditures incurred; any additional information that will support and/or verify the summary.

1 1,320 summaries (including pipelines)/ additional information

1,320

1704(j); NTL Request and obtain approval for extension of 120-day reporting period; including justification.

15 min. 75 requests 19

1704(j) Submit certified statement attesting to accuracy of the summary for expenditures incurred.

Exempt from the PRA under 5 CFR 1320.3(i)(1).

0

1712 Required data if permanently plugging a well. Requirement not considered Information Collection under 5 CFR 1320.3(h)(9).

0

1713 Notify BSEE 48 hours before beginning operations to permanently plug a well.

0.5 725 notices 363

1721(f) Install a protector structure designed according to 30 CFR 250, Subpart I, and equipped with aids to navigation. (These requests are processed via the

Burden covered under Subpart I 1014-0011

0

83

appropriate Platform Application, 30 CFR 250 Subpart I by the OSTS.)

1721(e); 1722(e), (h)(1); 1741(c)

Identify and report subsea wellheads, casing stubs, or other obstructions; mark wells protected by a dome; mark location to be cleared as navigation hazard.

U.S. Coast Guard requirements.

0

1722(c), (g)(2); 1704(i)

Notify BSEE within 5 days if trawl does not pass over protective device or causes damages to it; or if inspection reveals casing stub or mud line suspension is no longer protected.

1 11 notices 11

1722(f), (g)(3)

Submit annual report on plans for re-entry to complete or permanently abandon the well and inspection report.

2.5 98 reports 245

1722(h) Request waiver of trawling test. 1.5 4 requests 6 1725(a) Requests to maintain the structure to conduct other

activities are processed, evaluated and permitted by the OSTS via the appropriate Platform Application process, 30 CFR 250 Subpart I. (Other activities include but are not limited to activities conducted under the grants of right-of –ways (ROWs), rights – of-use and easement (RUEs), and alternate rights-of-use and easement authority issued under 30 CFR 250 Subpart J, 30 CFR 550.160, and / or 30 CFR 585, etc.)

Burden covered under Subpart I 1014-0011

0

1725(e) Notify BSEE 48 hours before beginning removal of platform and other facilities.

0.5 133 Notices

67

1726; 1704(a)

Submit initial decommissioning application in the Pacific and Alaska OCS Regions.

20 2 application 40

1727; 1728; 1730; 1703; 1704(c); 1725(b)

Submit final application and appropriate data to remove platform or other subsea facility structures (This included alternate depth departures and / or approvals of partial removal or toppling for conversion to an artificial reef.)

28 153 applications

4,284

$4,684 fee x 153 = $716,652

1729; 1704(d)

Submit post platform or other facility removal report; supporting documentation; signed statements, etc.

9.5 133 Reports

1,264

1740; 1741(g)

Request approval to use alternative methods of well site, platform, or other facility clearance; contact pipeline owner/operator before trawling to determine its condition.

12.75 30 requests /contacts

383

1743(b); 1704(g), (i)

Verify permanently plugged well, platform, or other facility removal site cleared of obstructions; supporting documentation; and submit certification letter.

5 117 certifications

585

1750; 1751; 1752; 1754; 1704(e)

Submit application to decommission pipeline in place or remove pipeline (L/T or ROW).

10 142 L/T applications

1,420

$1,142 L/T decommission fee x 142 = $162,164

10 122 ROW applications

1,220

$2,170 ROW decommissioning fees x 122 = $264,740

1753; 1704(f) Submit post pipeline decommissioning report. 2.5 180 reports 450

84

Total Burden

3,248 Responses

15,997 hours

$1,143,556 Non-Hour Cost Burdens

In addition, the PRA requires agencies to estimate the total annual reporting and

recordkeeping non-hour cost burden resulting from the collection of information, and we solicit

your comments on this item. For reporting and recordkeeping only, your response should split

the cost estimate into two components: (1) total capital and startup cost component and (2)

annual operation, maintenance, and purchase of service component. Your estimates should

consider the cost to generate, maintain, and disclose or provide the information. You should

describe the methods you use to estimate major cost factors, including system and technology

acquisition, expected useful life of capital equipment, discount rate(s), and the period over which

you incur costs. Generally, your estimates should not include equipment or services purchased:

(1) before October 1, 1995; (2) to comply with requirements not associated with the information

collection; (3) for reasons other than to provide information or keep records for the Government;

or (4) as part of customary and usual business or private practices.

As part of our continuing effort to reduce paperwork and respondent burdens, we invite the

public and other Federal agencies to comment on any aspect of this information collection,

including:

(1) Whether or not the collection of information is necessary, including whether or not the

information will have practical utility;

(2) The accuracy of our estimate of the burden for this collection of information;

(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and

(4) Ways to minimize the burden of the collection of information on respondents.

85

Send your comments and suggestions on this information collection by the date indicated in

the DATES section to the Desk Officer for the Department of the Interior at OMB–OIRA at

(202) 395–5806 (fax) or via at the www.reginfo.gov portal (online). You may view the

information collection request(s) at http://www.reginfo.gov/public/do/PRAMain. Please provide

a copy of your comments to the BSEE Information Collection Clearance Officer (see the

ADDRESSES section). You may contact Kye Mason, BSEE Information Collection Clearance

Officer at (703) 787-1607 with any questions. Please reference Risk Management, Financial

Assurance and Loss Prevention (OMB Control No. 1014-0010), in your comments.

BOEM Information Collection—Parts 550 and 556

This proposed rule would modify collections of information under 30 CFR 550, Subparts

A and J, and 30 CFR 556, Subpart I, concerning bonding and security requirements for leases,

pipeline right-of-way grants, and right-of-use easement grants. OMB has reviewed and approved

the information collection requirements associated with bonding and additional security

regulations for leases (30 CFR 556.900-907), pipeline right-of-way grants (30 CFR 550.1011),

and right-of-use easement grants (30 CFR 550.160 and 550.166).

BOEM recognized the need to develop a comprehensive program to help identify, prioritize,

and manage the financial risks associated with oil and gas activities on the OCS. BOEM’s goal

for this program is to protect American taxpayers from exposure to financial or environmental

risks from nonperformance of obligations associated with OCS leases and grants while also

assuring that its financial assurance program does not negatively impact offshore investment or

operations.

By moving forward with the proposed regulations for the financial assurance program,

BOEM would be able to more effectively address a number of complex financial issues. The

86

proposed regulations would establish new criteria that will reduce regulatory burdens and

compliance costs on Federal OCS oil, gas, and sulfur lessees, grant holders and operators. New

criteria would help determine whether OCS oil, gas and sulfur lessees, and right-of-use and

easement grant and pipeline right-of-way grant holders would be required to provide additional

bonds or other security (above prescribed amounts) to ensure compliance with their contractual

and regulatory obligations to BOEM. The proposed regulations would streamline the evaluation

criteria and would allow BOEM to consider the financial strength and reliability of a lessee, a co-

lessee, a co-holder of a grant, and/or a predecessor, to determine whether a lessee or grant holder

must provide additional security. The regulations would also remove overly restrictive

provisions for third-party guarantees and decommissioning accounts.

BOEM intends to modify OMB Control Number 1010-0006 (expiration January 31, 2023;

19,054 hours; $766,053 non-hour costs), Leasing of Sulfur or Oil and Gas in the Outer

Continental Shelf (30 CFR 550, Subpart J; 556, Subparts A through I, and K; and 560, Subparts

B and E)); and OMB Control Number 1010-0114 (expiration February 28, 2023; 18,323 hours;

$165,492 non-hour costs), 30 CFR 550, Subpart A, General, and Subpart K, Oil and Gas

Production Requirements. If this proposed rule becomes final and effective, the new and

changed provisions would reduce the overall annual burden hours for OMB Control Number

1010-0006 by 13 hours. The changed provisions for OMB Control Number 1010-0114 would

add new and revise requirements in 30 CFR 550, Subpart A, but would not impact the overall

burden hours for this control number. However, the new and modified requirements would be

significant enough to update the OMB control number.

Title of Collection: 30 CFR Parts 550 and 556, Risk Management, Financial Assurance and

Loss Prevention.

87

OMB Control Number: 1010-0006 and 1010-0114.

Form Number: None.

Type of Review: Revision of currently approved collections.

Respondents/Affected Public: Federal OCS oil, gas, and sulfur operators and lessees, and

right-of-use and easement grant and pipeline right-of-way grant holders.

Total Estimated Number of Annual Responses: 10,305 responses for 1010-0006, and 5,302

responses for 1010-0114.

Total Estimated Number of Annual Burden Hours: 19,041 hours for 1010-0006, and 18,323

hours for 1010-0114.

Respondent’s Obligation: Responses to this collection of information are mandatory, or are

required to obtain or retain a benefit.

Frequency of Collection: The frequency of response varies, but is primarily on the occasion

or as per the requirement.

Total Estimated Annual Nonhour Burden Cost: $766,053 for 1010-0006, and $165,492 for

1010-0114.

The following is a brief explanation of how the proposed regulatory changes would affect the

various subparts’ hour and non-hour cost burdens:

30 CFR 550, Subpart A (OMB Control Number 1010-0114):

Proposed § 550.160(b) would be revised to clarify that a right-of-use and easement grant

holder must exercise the grant according to the terms of the grant and the applicable regulations

of part 550, as well as the requirements of part 250, subpart Q. The annual burden hour would

not change based on this clarification.

88

Proposed § 550.160(c) would be revised to update the lessee qualification requirements

previously provided in § 556.35 (now obsolete), with associated burden hours “to establish a

regional Company File as required by BOEM,” to reflect the requirements in BOEM’s existing

regulations at §§ 556.400 through 556.402, which requires a lessee to demonstrate qualifications

to hold a lease on the OCS and to obtain a BOEM qualification number. The burden is currently

identified in OMB Control Number 1010-0114, and although the description of the lessee

qualification requirements has changed slightly, the annual burden would not change.

Proposed § 550.160(c) would also clarify that the criteria to determine when the holder of a

right-of-use and easement grant that serves an OCS lease may be required to provide security by

replacing a vague reference to “bonding requirements” with a cross-reference to § 550.166(d)

and its criteria. The annual burden hour would not change based on this clarification.

Proposed § 550.166 (d)(1) relates to BOEM’s determination of whether additional security is

necessary to ensure compliance with the obligations under a right-of-use and easement grant.

This determination will be based on whether a right-of-use and easement grant holder has the

ability to carry out present and future financial obligations. The criteria proposed for the

financial determination include an issuer credit rating, or a proxy credit rating based on audited

financial information. The issuer credit rating and the audited financial information on which

BOEM determines a proxy credit rating already exist. The burden of determining a proxy credit

rating falls on BOEM. The annual burdens placed on the grant holder would be minimal and

would be included in the burden estimates for 30 CFR 556.901(d) found in OMB Control

Number 1010-0006.

New § 550.166(d)(2) would allow BOEM to consider the issuer credit rating or proxy credit

rating of a predecessor right-of-use and easement grant holder or a predecessor lessee. This is a

89

new provision that may slightly increase annual burden hours. Burden change would be

reflected in the burden estimate for 30 CFR 556.901(d)(2) found in OMB Control Number 1010-

0006.

30 CFR 550, Subpart J (OMB Control Number 1010-0006):

Proposed § 550.1011(d)(1) relates to BOEM’s determination of whether additional security is

necessary to ensure compliance with the obligations under a pipeline right-of-way grant. This

determination would be based on whether a pipeline right-of-way grant holder has the ability to

carry out present and future financial obligations. The criteria proposed for the financial

determination include an issuer credit rating or a proxy credit rating. The issuer credit rating and

the audited financial information on which BOEM determines a proxy credit rating already exist.

The burden of determining a proxy credit rating falls on BOEM. The annual burdens placed on

the grant holder would be minimal and would be included in the burden estimates for 30 CFR

556.901(d).

Proposed § 550.1011(d)(2)(i) would allow BOEM to consider the issuer credit rating or

proxy credit rating of a co-grant holder. This is a new provision that may slightly increase

annual burden hours. Burden change would be reflected in the burden estimates for 30 CFR

556.901(d)(2).

Proposed § 550.1011(d)(2)(ii) would allow BOEM to consider the issuer credit rating or

proxy credit rating of a predecessor pipeline right-of-way grant holder. This is a new provision

that may slightly increase annual burden hours. Burden change would be reflected in the burden

estimates for 30 CFR 556.901(d)(2).

30 CFR 556, Subpart I (OMB Control Number 1010-0006):

90

Proposed § 556.901(d)(1) relates to BOEM’s determination of whether additional security is

necessary to ensure compliance with the obligations under a lease. This determination would be

based on the lessee’s ability to carry out present and future financial obligations as demonstrated

by an issuer credit rating or a proxy credit rating determined by BOEM based on audited

financial information.

New § 556.901(d)(2)(i) would allow BOEM to consider the issuer credit rating or proxy

credit rating of a co-lessee, and new § 556.901(d)(2)(ii) would allow BOEM to consider the net

present value of proved oil and gas reserves on the lease. There would be no need to submit

proved reserve information if the lessee is not required to provide additional bonding based on its

issuer credit rating, or proxy credit rating, or those of its co-lessees or predecessors. Under the

existing regulations, the Regional Director was to take this “financial strength” information into

account in every case when determining whether additional security is necessary.

New § 556.901(d)(2)(iii) would allow BOEM to consider the issuer credit rating or proxy

credit rating of a predecessor lessee. This would not change existing burden hour estimates.

This proposed requirement would likely increase the number of respondents due to additional

companies’ preparing and submitting an issuer credit rating or audited financials so that BOEM

can determine proxy credit ratings.

The existing OMB approved hour burden for each respondent to prepare and submit the

information for the existing evaluation criteria requirements is 3.5 hours. In this proposed rule,

the evaluation criteria would be streamlined and would likely require less time for the

respondents to prepare and submit the information, particularly for an issuer credit rating or

audited financials. However, the time necessary for companies to prepare and submit

information on the proved oil and gas reserves would likely be greater than 3.5 hours. Therefore,

91

BOEM proposes to retain the 3.5 hour burden to reflect the decrease in time required to prepare

and submit issuer credit ratings and audited financials and the increase in time required for

preparing and submitting information on proved reserves. When the final rule becomes

effective, the related burden hours for all respondents (a lessee, co-lessee, a co-grant holder,

and/or a predecessor) would be included in OMB Control Number 1010-0006.

The OMB approved number of respondents who currently submit financial information

under the existing provisions is 166 respondents. Recently, BOEM has seen the number of

leases decrease in the Gulf of Mexico. Therefore, BOEM expects the overall number of

respondents, even with the increase of new respondents related to § 556.901(d)(2), to be less than

the current 166 respondents. BOEM estimates the new number of respondents would be

approximately between 150 and 160 respondents. When the final rule becomes effective, BOEM

will include the new number of respondents in OMB Control Number 1010-0006.

The existing OMB approved annual burden hours for § 556.901 related to demonstrating

financial worth/ability to carry out present and future financial obligations is 581 hours. With

the changes provided in the proposed rule and described above, BOEM estimates that the annual

hour burden would decrease by approximately 21 annual burden hours. This decrease in annual

burden hours would be reflected in OMB Control Number 1010-0006 when the final rule

becomes effective.

Proposed revisions to § 556.904 would allow the Regional Director to authorize a right-of-

use and easement grant holder and a pipeline right-of-way grant holder, as well as a lessee, to

establish a decommissioning account as additional security required under § 556.901(d), or §

550.166(d) or § 550.1011(d). BOEM also proposes to remove the requirement to provide

instructions for the institution managing the account to purchase Treasury securities pledged to

92

BOEM and to actually use such Treasuries to fund the account before the account equals the

maximum insurable amount determined by the Federal Deposit Insurance Corporation, currently

$250,000. A new provision is proposed under § 556.904(a)(3), which would require immediate

submission of a bond or other security in the amount equal to the remaining unsecured portion of

the estimated decommissioning liability amount if the initial payment or any scheduled payment

into the decommissioning account is not timely made. This provision may increase the annual

burden hours slightly, and would be reflected in OMB Control Number 1010-0006.

Proposed § 556.905(b)(2) would be revised to eliminate the requirement that, when a

guarantor becomes unqualified, a lessee must cease production, until bond coverage

requirements are met. The regulatory provision would be replaced with a requirement to

immediately submit and maintain a substitute bond or other security. Both the existing and

proposed provisions require the lessee to provide bond coverage; however, BOEM’s current

OMB Control Number 1010-0006 does not quantify the burdens associated with either situation.

Therefore, BOEM would add approximately 8 annual burden hours to OMB Control Number

1010-0006 for any lessee whose guarantor became unqualified.

Proposed § 556.905(c) relates to the guarantor’s ability to carry out present and future

financial obligations, which would be evaluated using an issuer credit rating, or a proxy credit

rating based on audited financial information, both of which exist independent of the requirement

for submitting them to BOEM. Since BOEM would evaluate the financial ability of the

guarantor, the burden would fall on BOEM. The annual burdens placed on the guarantor would

be minimal and would be included in the burden estimates for OMB Control Number 1010-0006.

Proposed § 556.905(c) would remove the requirement that a guarantee ensure compliance

with all lessees’ or grant holders’ obligations and the obligations of all operators on the lease or

93

grant. This revision would allow a third-party guarantor to limit the obligations covered by the

third-party guarantee. In some situations, this change could result in additional paperwork

burden due to additional bonds or other security that must be provided to BOEM to cover

obligations previously covered by a third-party guarantee. BOEM estimates these occurrences to

be low and the annual burdens would be included in the burden estimates for OMB Control

Number 1010-0006.

Proposed § 556.905(d) also replaces the indemnity agreement with a third-party guarantee

agreement with comparable provisions. This change would not impact annual burden hours.

Proposed § 556.905(d)(4) would provide that a lessee or grant holder and the guarantor under

a third-party guarantee may request BOEM to cancel a third-party guarantee. BOEM would

cancel a third-party guarantee under the same terms and conditions provided for cancellation of

additional bonds in proposed § 556.906(d)(2). The existing OMB burden under § 556.905 and

§ 556.906 would be expanded to include this new provision. The current burden for OMB

Control Number 1010-0006 is overestimated at ½ hour time by 378 responses. Therefore, the

burden added by the new provision for these types of requests would be included in the existing

burden.

Proposed § 556.906(d)(2) would be revised to add three additional circumstances when

BOEM may cancel an additional bond or other security. Proposed paragraphs

556.906(d)(2)(ii)(A) through (C) would require a cancellation request from the lessee or grant

holder, or the surety, based on assertions that one of these three circumstances is present. BOEM

already receives these types of requests and has approved the requests, where warranted, on the

basis of a departure from the regulations. Therefore, the existing OMB burden estimate for

OMB Control Number 1010-0006 includes these requests.

94

Overall, this proposed rule would result in the following adjustments in hour burden, which

would lead to an overall reduction of 13 annual burden hours:

● The hours per response for all respondents (i.e., a lessee, a co-lessee, a co-grant

holder, and/or a predecessor) who demonstrate financial worth/ability to carry out

present and future financial obligations, request approval of another form of security,

or request reduction in amount of supplemental bond required, along with the

monitoring and submission of required information, will remain at 3.5 hours as

approved by OMB in OMB Control Number 1010-0006. The number of responses

for the provisions related to §§ 550.160, 550.166, 550.1011, and 556.900-902 would

decrease to 160 respondents from 166 respondents due to program changes as

explained above. The related existing and new provisions would result in a decrease

of 21 burden hours from 581 to 560 annual burden hours, which would be reflected in

OMB Control Number 1010-0006.

● The hours per response for proposed § 556.905(b)(2) would be an increase from 0 to

2 hours. The number of responses for this provision would increase from 0 to 4.

Therefore, this new provision would add 8 annual burden hours to OMB Control

Number 1010-0006.

If this proposed rule becomes effective, BOEM would use the existing OMB control numbers

for the affected subparts discussed above and would adjust their IC burdens accordingly.

The IC does not include questions of a sensitive nature. BOEM will protect proprietary

information according to the Freedom of Information Act (5 U.S.C. 552) and DOI implementing

regulations (43 CFR part 2), 30 CFR 556.104, Information collection and proprietary

95

information, and 30 CFR 550.197, Data and information to be made available to the public or

for limited inspection.

In addition, the PRA requires agencies to estimate the total annual reporting and

recordkeeping non-hour cost burden resulting from the collection of information, and we solicit

your comments on this item. For reporting and recordkeeping only, your response should split

the cost estimate into two components: (1) total capital and startup cost component and (2)

annual operation, maintenance, and purchase of service component. Your estimates should

consider the cost to generate, maintain, and disclose or provide the information. You should

describe the methods you use to estimate major cost factors, including system and technology

acquisition, expected useful life of capital equipment, discount rate(s), and the period over which

you incur costs. Generally, your estimates should not include equipment or services purchased:

(1) before October 1, 1995; (2) to comply with requirements not associated with the information

collection; (3) for reasons other than to provide information or keep records for the Government;

or (4) as part of customary and usual business or private practices.

As part of our continuing effort to reduce paperwork and respondent burdens, we invite the

public and other Federal agencies to comment on any aspect of this information collection,

including:

(1) Whether or not the collection of information is necessary, including whether or not the

information will have practical utility;

(2) The accuracy of our estimate of the burden for this collection of information;

(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and

96

(4) Ways to minimize the burden of the collection of information on respondents.

Send your comments and suggestions on this information collection by the date indicated in

the DATES section to the Desk Officer for the Department of the Interior at OMB–OIRA at

(202) 395–5806 (fax) or via the www.reginfo.gov portal (online). You may view the

information collection request(s) at http://www.reginfo.gov/public/do/PRAMain. Please provide

a copy of your comments to the BOEM Information Collection Clearance Officer (see the

ADDRESSES section). You may contact Anna Atkinson, BOEM Information Collection

Clearance Officer at (703) 787-1025 with any questions. Please reference Risk Management,

Financial Assurance and Loss Prevention (OMB Control No. 1010-0006), in your comments.

J. National Environmental Policy Act

A detailed environmental analysis under the National Environmental Policy Act of 1969

(NEPA) is not required if the proposed rule is covered by a categorical exclusion (see 43 CFR

46.205). This proposed rule meets the criteria set forth at 43 CFR 46.210(i) for a Departmental

Categorical Exclusion in that this proposed rule is ‘‘. . . of an administrative, financial, legal,

technical, or procedural nature . . . .’’ We have also determined that the proposed rule does not

involve any of the extraordinary circumstances listed in 43 CFR 46.215 that would require

further analysis under NEPA.

K. Data Quality Act

In developing this proposed rule, we did not conduct or use a study, experiment, or survey

requiring peer review under the Data Quality Act (Pub. L. 106–554, app. C, sec. 515, 114 Stat.

2763, 2763A–153–154).

L. Effects on the Nation’s Energy Supply (E.O. 13211)

97

Under E.O. 13211, agencies are required to prepare and submit to OMB a Statement of

Energy Effects for “significant energy actions.” This should include a detailed statement of any

adverse effects on energy supply, distribution, or use (including a shortfall in supply, price

increases, and increased use of foreign supplies) expected to result from the action and a

discussion of reasonable alternatives and their effects.

The proposed rule is an E.O. 13771 deregulatory action and does not add new regulatory

compliance requirements that would lead to adverse effects on the nation’s energy supply,

distribution, or use. Rather, in accordance with E.O. 13783, the proposed regulatory changes

will help to reduce compliance burdens on the oil and gas industry that may hinder the continued

development or use of domestically produced energy resources.

The BOEM regulatory changes are expected to provide the oil and gas industry with direct

annualized compliance cost savings of $17.0 million (7% discounting) over the proposed rule’s

20-year analysis of the rule’s effects. The compliance cost savings experienced by the offshore

oil and gas industry under this proposed rule will reduce the overall costs of OCS operating

companies. BSEE’s proposals result in no cost impacts. Moreover, since BSEE’s proposed

regulatory changes apply only to facilities that occur after exploration, development and

production activities have ended, those changes would not affect the nation’s energy supply,

distribution and use. Reduced regulatory burdens do not adversely affect productivity,

competition, or prices within the energy sector. This proposed rule is not a significant energy

action under the definition in E.O. 13211. Therefore, a Statement of Energy Effects is not

required.

M. Clarity of This Regulation

98

BOEM is required by E.O. 12866, E.O. 12988, and by the Presidential Memorandum of June

1, 1998, to write all rules in plain language. This means that each rule BOEM publishes must:

(1) Be logically organized;

(2) Use the active voice to address readers directly;

(3) Use clear language rather than jargon;

(4) Be divided into short sections and sentences; and

(5) Use lists and tables wherever possible.

If you feel that BOEM or BSEE have not met these requirements, send comments by one of the

methods listed in the ADDRESSES section. To better help BOEM and BSEE revise the

proposed rule, your comments should be as specific as possible. For example, you should

specify the numbers of the sections or paragraphs that you find unclear, which sections or

sentences are too long, the sections where you feel lists or tables would be useful, etc.

99

List of Subjects

30 CFR Part 250

Administrative practice and procedure, Continental shelf, Environmental impact statements,

Environmental protection, Government contracts, Investigations, Oil and gas exploration,

Penalties, Pipelines, Public lands—mineral resources, Public lands—rights of-way, Reporting

and recordkeeping requirements, Sulfur.

30 CFR Part 290

Administrative practice and procedure.

30 CFR Part 550

Administrative practice and procedure, Continental shelf, Environmental impact statements,

Environmental protection, Federal lands, Government contracts, Investigations, Mineral

resources, Oil and gas exploration, Outer continental shelf, Penalties, Pipelines, Reporting and

recordkeeping requirements, Rights-of-way, Sulfur.

30 CFR Part 556

Administrative practice and procedure, Continental shelf, Environmental protection, Federal

lands, Government contracts, Intergovernmental relations, Oil and gas exploration, Outer

continental shelf, Mineral resources, Reporting and recordkeeping requirements.

___________________________________________ _______________ Casey Hammond Date Principal Deputy Assistant Secretary, Exercising the Authority of the Assistant Secretary, Land and Minerals Management

100

For the reasons stated in the preamble, BOEM and BSEE propose to amend 30 CFR parts

250, 290, 550, and 556 as follows:

TITLE 30—MINERAL RESOURCES

CHAPTER II—BUREAU OF SAFETY AND ENVIRONMENTAL ENFORCEMENT,

DEPARTMENT OF THE INTERIOR

SUBCHAPTER B--OFFSHORE

PART 250—OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER

CONTINENTAL SHELF

1. The authority citation for part 250 continues to read as follows:

Authority: 30 U.S.C. 1751; 31 U.S.C. 9701; 33 U.S.C. 1321(j)(1)(C); 43 U.S.C. 1334

2. Amend § 250.105 by removing the terms and definitions for “Easement” and “Right-of-use”

and replacing them with a new term and definition for “Right-of-Use and Easement” to read as

follows:

§ 250.105 Definitions.

* * * * *

Right-of-Use and Easement means a right to use a portion of the seabed at an OCS site, other

than on a lease you own, to construct, modify, or maintain platforms, artificial islands, facilities,

installations, and other devices, established to support the exploration, development, or

production of oil and gas, mineral, or energy resources from an OCS or State submerged lands

lease.

* * * * *

3. Amend § 250.1700 by revising the section title, revising paragraph (a)(2), and by adding a

new paragraph (d), to read as follows:

101

§ 250.1700 What do the terms “decommissioning,” “obstructions,” “facility,” and

“predecessor” mean?

(a) * * *

(2) Returning the lease, pipeline right-of-way, or the area of a right-of-use and easement to a

condition that meets the requirements of BSEE and other agencies that have jurisdiction over

decommissioning activities.

* * * * *

(d) Predecessor means a prior lessee or owner of operating rights, or a prior holder of a right-of-

use and easement grant, or a pipeline right-of-way grant, that is liable for accrued obligations on

that lease or grant.

4. Revise § 250.1701 to read as follows:

§ 250.1701 Who must meet the decommissioning obligations in this subpart?

(a) Lessees, owners of operating rights, and their predecessors, are jointly and severally liable for

meeting decommissioning obligations for facilities on leases, including the obligations related to

lease-term pipelines, as the obligations accrue and until each obligation is met.

(b) All holders of a right-of-way grant and their predecessors are jointly and severally liable for

meeting decommissioning obligations for facilities on their right-of-way, including right-of-way

pipelines, as the obligations accrue and until each obligation is met.

(c) All right-of-use and easement grant holders and prior lessees of the parcel on whose leases

there existed facilities or obstructions that remain on the right-of-use and easement grant are

jointly and severally liable for meeting decommissioning obligations, including obligations for

any well, pipeline, platform or other facility, or an obstruction, on their right-of-use and

easement, as the obligations accrue and until each obligation is met.

102

(d) In this subpart, the terms “you” or “I” refer to lessees and owners of operating rights,

including their predecessors, as to facilities installed under the authority of a lease; to pipeline

right-of-way grant holders, including their predecessors, as to facilities installed under the

authority of a pipeline right-of-way grant; and to right-of-use and easement grant holders,

including their predecessors, such as former lessees of the parcel, as to facilities constructed,

modified, or maintained under the authority of the right-of-use and easement grant.

5. Amend § 250.1702 by revising paragraph (e), re-designating paragraph (f) as paragraph (g),

and adding new paragraph (f), to read as follows:

§ 250.1702 When do I accrue decommissioning obligations?

* * * * *

(e) Are or become a holder of a pipeline right-of-way on which there is a pipeline, platform, or

other facility, or an obstruction;

(f) Are or become the holder of a right-of-use and easement grant on which there is a well,

pipeline, platform, or other facility, or an obstruction; or

(g) Re-enter a well that was previously plugged according to this subpart.

6. Amend § 250.1703 by revising paragraph (e) to read as follows:

§ 250.1703 What are the general requirements for decommissioning?

* * * * *

(e) Clear the seafloor of all obstructions created by your lease, pipeline right-way, or right-of-use

and easement operations;

* * * * *

7. Amend § 250.1704 by redesignating paragraphs (b) through (j) as paragraphs (c) through (k)

and by inserting a new paragraph (b) to read as follows:

103

§ 250.1704 What decommissioning applications and reports must I submit and when must I

submit them?

* * * * *

DECOMMISSIONING APPLICATIONS AND REPORTS TABLE

Decommissioning applications and reports

When to submit Instructions

******* (b) Submit decommissioning plan per § 250.1708(b)(3) that addresses all wells, platforms and other facilities, pipelines, and site clearance upon receiving an order to perform decommissioning.

*******

Within 90 days of receiving an order to perform decommissioning under § 250.1708(a)

Include information required under § 250.1708(b)(2) and (b)(3)

8. Replace reserved § 250.1708 with a new § 250.1708 to read as follows:

§ 250.1708 – How will BSEE enforce accrued decommissioning obligations against

predecessors?

(a) Except as provided in paragraph (d), when holding predecessors responsible for performing

accrued decommissioning obligations, BSEE will issue decommissioning orders to groups of

predecessors who held interests in the lease or grant within the same general timeframe in reverse

chronological order. BSEE will issue such orders to predecessors in groups organized by the

following:

104

(1) Changes in designated operator(s) over time (i.e., all predecessors who held relevant lease or

grant interests during the tenure of a particular designated operator or during the tenure of

contemporaneous designated operators); and

(2) Predecessors who assigned interests to a lessee, owner of operating rights, or grant holder that

subsequently defaulted.

(b) When BSEE issues an order to predecessors to perform accrued decommissioning obligations,

the predecessors must:

(1) Within 30 days of receiving the order, begin maintaining and monitoring, through a single

entity identified to BSEE, any facility, including wells and pipelines as identified by BSEE in the

order, in accordance with applicable requirements under this part (including, but not limited to,

testing safety valves and sensors, draining vessels, and performing pollution inspections); and

(2) Within 60 days of receiving the order, designate a single entity to serve as operator for the

decommissioning operations;

(3) Within 90 days of receiving the order, the entity identified in paragraph (2) must submit a

decommissioning plan for approval by the Regional Supervisor that includes the scope of work

and a reasonable decommissioning schedule for all wells, platforms and other facilities, pipelines,

and site clearance, as identified in the order; and

(4) Perform the required decommissioning in the time and manner specified by BSEE in its

decommissioning plan approval.

(c) Failure to comply with the obligations under paragraph (b) to maintain and monitor a facility

or to submit a decommissioning plan may result in a Notice of Incident of Noncompliance and

potentially other enforcement actions, including civil penalties and disqualification as an operator.

105

(d) Under certain circumstances, BSEE may depart from the order of recourse prescribed in

paragraph (a) and issue orders to any or all predecessors for the performance of their respective

accrued decommissioning obligations. Those circumstances include, but are not limited to:

(1) Failure to obtain approval of a decommissioning plan under paragraph (b)(3) or to execute

decommissioning according to the approved decommissioning plan;

(2) Determination by the Regional Supervisor that there is an emergency condition, safety concern,

or environmental threat, including but not limited to facilities not being properly maintained and

monitored in accordance with applicable requirements under this part; or

(3) Determination by the Regional Supervisor that proceeding pursuant to paragraph (a) would

unreasonably delay decommissioning.

(e) BSEE’s issuance of orders to any predecessors will not relieve any current lessee or grant

holder, or any other predecessor, of its obligations to comply with any prior decommissioning

order or to satisfy any accrued decommissioning obligations.

(f) A pending appeal, pursuant to 30 CFR part 290, of any decommissioning order does not

preclude BSEE from proceeding against any or all predecessors other than the appellant in

accordance with paragraph (d).

9. Replace reserved § 250.1709 with a new § 250.1709 to read as follows:

§ 250.1709 What must I do to appeal a BSEE final decommissioning decision or order

issued under this subpart?

If you file an appeal, pursuant to 30 CFR part 290, of a BSEE decision or order to perform any

decommissioning activity under subpart Q of this part, in order to seek to obtain a stay of that

decision or order, you must post a surety bond in an amount that BSEE determines will be

106

adequate to ensure completion of the specified decommissioning activities in the event that your

appeal is denied and you thereafter fail to perform any of your decommissioning obligations.

10. Amend § 250.1725 by revising the first sentence of paragraph (a) to read as follows:

§ 250.1725 When do I have to remove platforms and other facilities?

(a) You must remove all platforms and other facilities within 1 year after the lease, pipeline

right-of-way, or right-of-use and easement terminates, unless you receive approval to maintain

the structure to conduct other activities.* * *

* * * * *

SUBCHAPTER C—APPEALS

PART 290—APPEAL PROCEDURES

11. The authority citation for part 290 continues to read as follows:

Authority: 5 U.S.C. 305; 43 U.S.C. 1334.

12. Amend § 290.7(a) by revising paragraph (a)(2) to read as follows:

(a) * * *

(2) You post a surety bond under 30 CFR 250.1409 pending the appeal challenging an

order to pay a civil penalty or under 30 CFR 250.1709 pending the appeal challenging a

decommissioning decision or order.

* * * * *

107

CHAPTER V—BUREAU OF OCEAN ENERGY MANAGEMENT, DEPARTMENT OF

THE INTERIOR

PART 550—OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER

CONTINENTAL SHELF

13. The authority citation for part 550 continues to read as follows:

Authority: 30 U.S.C. 1751; 31 U.S.C. 9701; 43 U.S.C. 1334

Subpart A—General

14. Amend § 550.105 by:

a. adding a new term and definition for “Issuer credit rating;”

b. removing the term and definition for “Easement,” and for “Right-of-use;”

c. adding a new term and definition for “Predecessor;”

d. adding a new term and definition for “Right-of-Use and Easement;”

e. adding a new term and definition for “Security;” and

f. revising the definition of “You” to read as follows:

§ 550.105 Definitions.

* * * * *

Issuer credit rating means a forward-looking opinion about an obligor’s overall creditworthiness.

This opinion focuses on the obligor’s capacity and willingness to meet its financial commitments

as they come due. It does not apply to any specific financial obligation, as it does not take into

account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation,

statutory preferences, or the legality and enforceability of the obligation.

* * * * *

108

Predecessor means a prior lessee or owner of operating rights, or a prior holder of a right-of-use

and easement grant or a pipeline right-of-way grant, that is liable for accrued obligations on that

lease or grant.

* * * * *

Right-of-Use and Easement means a right to use a portion of the seabed at an OCS site other than

on a lease you own, to construct, modify or maintain platforms, artificial islands, facilities,

installations, and other devices, established to support the exploration, development, or

production of oil and gas, mineral, or energy resources from an OCS or State submerged lands

lease.

* * * * *

Security means a surety bond, a pledge of Treasury securities, a decommissioning account, a

third-party guarantee or any other form of financial assurance provided to BOEM to ensure

compliance with obligations under a lease, a right-of-use and easement grant, or a pipeline right-

of-way grant.

* * * * *

You, depending on the context of the regulations, means a bidder, a lessee (record title owner), a

sublessee (operating rights owner), a right-of-use and easement grant holder, a pipeline right-of-

way grant holder, a predecessor, a designated operator or agent of the lessee or grant holder, or

an applicant seeking to become one of the above.

15. Amend § 550.160 by revising the introductory text, the paragraph (a) introductory text, and

paragraphs (b) and (c) to read as follows:

§ 550.160 When will BOEM grant me a right-of-use and easement, and what requirements

must I meet?

109

BOEM may grant you a right-of-use and easement on leased or unleased lands or both on the

OCS, if you meet these requirements:

(a) You must need the right-of-use and easement to construct or maintain platforms, artificial

islands, facilities, installations, and other devices at an OCS site other than an OCS lease you

own, that are:

* * * * *

(b) You must exercise the right-of-use and easement according to the terms of the grant and the

applicable regulations of this part, as well as the requirements of part 250, subpart Q of this title.

(c) You must meet the qualification requirements at §§ 556.400 through 556.402 of this chapter

and the bonding requirements in § 550.166(d).

* * * * *

16. Revise § 550.166 to read as follows:

§ 550.166 If BOEM grants me a right-of-use and easement, what surety bond or other

security must I provide?

(a) Before BOEM grants you a right-of-use and easement on the OCS that serves your State

lease, you must furnish the Regional Director a surety bond for $500,000.

(b) The requirement to furnish a surety bond under paragraph (a) of this section may be satisfied

if your operator provides a surety bond in the required amount that guarantees compliance with

all the terms and conditions of the right-of-use and easement grant.

110

(c) The requirements for lease bonds in § 556.900(d) through (g) and § 556.902 of this chapter

apply to the $500,000 surety bond required if BOEM grants you a right-of-use and easement to

serve your State lease.

(d) If BOEM grants you a right-of-use and easement that serves either an OCS lease or a State

lease, the Regional Director may determine that additional security (i.e., security above the

amount prescribed in paragraph (a) of this section) is necessary to ensure compliance with the

obligations under your right-of-use and easement grant based on an evaluation of your ability to

carry out present and future obligations on the right-of-use and easement. The Regional Director

may require you to provide additional security if you do not meet at least one of the criteria

provided below:

(1) You have an issuer credit rating or a proxy credit rating that meets the criteria in

§ 556.901(d)(1) of this chapter; or

(2) If you do not meet the criteria in paragraph (1) above, a predecessor right-of-use and

easement grant holder or a predecessor lessee liable for decommissioning any facilities on your

right-of-use and easement has an issuer credit rating or a proxy credit rating that meets the

criteria set forth in § 556.901(d)(1) of this chapter. However, the Regional Director may require

you to provide additional security for decommissioning obligations for which such a predecessor

is not liable.

(e) This additional security must:

(1) Meet the requirements of § 556.900(d) through (g) and § 556.902 of this chapter; and

111

(2) Cover costs and liabilities for regulatory compliance, well abandonment, platform and

structure removal, and site clearance of the seafloor of the right-of-use and easement, in

accordance with the standards set forth in part 250, subpart Q of this title.

(f) If you fail to replace a deficient bond or fail to provide additional security upon demand, the

Regional Director may:

(1) Assess penalties under subpart N of this part;

(2) Request BSEE to suspend operations on your right-of-use and easement; and

(3) Initiate action for cancellation of your right-of-use and easement grant.

Subpart J—Pipelines and Pipeline Rights-of-Way

17. Revise § 550.1011 to read as follows:

§ 550.1011 Bond or other security requirements for pipeline right-of-way grant holders.

(a) When you apply for or are the holder of a pipeline right-of-way grant, you must furnish and

maintain a $300,000 areawide bond that guarantees compliance with all the terms and conditions

of all of the pipeline right-of-way grants you hold in an OCS area as defined in § 556.900(b) of

this chapter.

(b) The requirement to furnish and maintain an areawide pipeline right-of-way bond under

paragraph (a) of this section may be satisfied if your operator or a co-grant holder provides an

areawide pipeline right-of-way bond in the required amount that guarantees compliance with all

the terms and conditions of the grant.

(c) The requirements for lease bonds in § 556.900(d) through (g) and § 556.902 of this chapter

apply to the areawide bond required in paragraph (a) of this section.

112

(d) The Regional Director may determine that additional security (i.e., security above the amount

prescribed in paragraph (a) of this section) is necessary to ensure compliance with the obligations

under your pipeline right-of-way grant based on an evaluation of your ability to carry out present

and future obligations on the pipeline right-of-way. The Regional Director may require you to

provide additional security if you do not meet at least one of the criteria provided below:

(1) You have an issuer credit rating or a proxy credit rating that meets the criteria in

§ 556.901(d)(1) of this chapter; or

(2) If you do not meet the criteria in paragraph (1) above,

(i) Your co-grant holder has an issuer credit rating or a proxy credit rating that meets the criteria

in § 556.901(d)(1) of this chapter; or

(ii) A predecessor pipeline right-of-way grant holder liable for decommissioning any facilities on

your pipeline right-of-way has an issuer credit rating or a proxy credit rating that meets the

criteria in § 556.901(d)(1) of this chapter. However, the Regional Director may require you to

provide additional security for decommissioning obligations for which such a predecessor is not

liable.

(e) This additional security must:

(1) Meet the requirements of § 556.900(d) through (g) and § 556.902 of this chapter, and

(2) Cover additional costs and liabilities for regulatory compliance, decommissioning of all

pipelines, and site clearance from the seafloor of all obstructions created by your pipeline right-

of-way operations in accordance with the standards set forth in part 250, subpart Q of this title.

113

(f) If you fail to replace a deficient bond or fail to provide additional security upon demand, the

Regional Director may:

(1) Assess penalties under subpart N of this part;

(2) Request BSEE to suspend operations on your pipeline; and

(3) Initiate action for forfeiture of your pipeline right-of-way grant in accordance with

§ 250.1013 of this title.

PART 556—LEASING OF SULFUR OR OIL AND GAS AND BONDING

REQUIREMENTS IN THE OUTER CONTINENTAL SHELF

18. Revise the authority citation for part 556 to read as follows:

Authority: 30 U.S.C. 1701 note; 30 U.S.C. 1711; 31 U.S.C. 9701; 42 U.S.C. 6213; 43 U.S.C.

1334.

Subpart A—General Provisions

19. Amend § 556.105 by:

a. adding a new term and definition for “Issuer credit rating;”

b. adding a new term and definition for “Predecessor;”

c. revising the term and definition of “Right-of-Use and Easement (RUE);”

d. removing the term and definition of “Security or securities” and adding a new term and

definition for “Security;” and

e. revising the definition of “You” to read as follows:

§ 556.105 Acronyms and definitions.

* * * * *

114

Issuer credit rating means a forward-looking opinion about an obligor’s overall creditworthiness.

This opinion focuses on the obligor’s capacity and willingness to meet its financial commitments

as they come due. It does not apply to any specific financial obligation, as it does not take into

account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation,

statutory preferences, or the legality and enforceability of the obligation.

* * * * *

Predecessor means a prior lessee or owner of operating rights, or a prior holder of a right-of-use

and easement grant or a pipeline right-of-way grant, that is liable for accrued obligations on that

lease or grant.

* * * * *

Right-of-Use and Easement means a right to use a portion of the seabed at an OCS site other than

on a lease you own, to construct, modify or maintain platforms, artificial islands, facilities,

installations, and other devices, established to support the exploration, development, or

production of oil and gas, mineral, or energy resources from an OCS or State submerged lands

lease.

* * * * *

Security means a surety bond, a pledge of Treasury securities, a decommissioning account, a

third-party guarantee or any other form of financial assurance provided to BOEM to ensure

compliance with obligations under a lease, a right-of-use and easement grant or a pipeline right-

of-way grant.

* * * * *

You, depending on the context of the regulations, means a bidder, a lessee (record title owner), a

sublessee (operating rights owner), a right-of-use and easement grant holder, a pipeline right-of-

115

way grant holder, a predecessor, a designated operator or agent of the lessee or grant holder, or

an applicant seeking to become one of the above.

Subpart I—Bonding or Other Financial Assurance

20. Amend § 556.900 by revising the section heading, paragraph (a) introductory text,

paragraphs (a)(2) and (3), paragraph (g) introductory text, and paragraph (h) to read as follows:

§ 556.900 Bond or other security requirements for an oil and gas or sulfur lease.

* * * * *

(a) Before BOEM will issue a new lease or approve the assignment or sublease of an interest in

an existing lease, you or another record title or operating rights owner of the lease must:

(1) * * *

(2) Maintain a $300,000 areawide bond that guarantees compliance with all the terms and

conditions of all your oil and gas and sulfur leases in the area where the lease is located; or

(3) Maintain a lease or areawide bond in the amount required in § 556.901(a) or (b).

* * * * *

(g) You may pledge alternative types of security instruments instead of providing a surety bond

if the Regional Director determines that the alternative security protects the interests of the

United States to the same extent as the required surety bond.

* * * * *

(h) If you fail to replace a deficient bond or to provide additional security upon demand, the

Regional Director may:

(1) Assess penalties under part 550, subpart N of this chapter;

116

(2) Request BSEE to suspend production and other operations on your lease in accordance with

§ 250.173 of this title; and

(3) Initiate action to cancel your lease.

21. Amend § 556.901 by revising the section heading, revising paragraph (a)(1)(i) introductory

text, revising paragraphs (c), (d), (e) and (f), and adding paragraph (g) to read as follows:

§ 556.901 Bonds and additional security.

(a) * * *

(1)(i) You must furnish the Regional Director a $200,000 lease exploration bond that guarantees

compliance with all the terms and conditions of the lease by the earliest of:

* * * * *

(c) If you can demonstrate to the satisfaction of the Regional Director that you can satisfy your

decommissioning obligations for less than the amount of security required under paragraph (a)(1)

or (b)(1) of this section, the Regional Director may accept security in an amount less than the

prescribed amount, but not less than the estimated cost for decommissioning.

(d) The Regional Director may determine that additional security (i.e., security above the

amounts prescribed in § 556.900(a) and paragraphs (a) and (b) of this section) is necessary to

ensure compliance with the obligations under your lease, the regulations in this chapter, and the

regulations in 30 CFR chapters II and XII, based on an evaluation of your ability to carry out

present and future obligations on the lease. The Regional Director may require you to provide

additional security if you do not meet at least one of the criteria provided below:

(1) You have an issuer credit rating from a nationally recognized statistical rating organization

(NRSRO), as defined by the United States Securities and Exchange Commission (SEC), greater

117

than or equal to either BB- from S&P Global Ratings or Ba3 from Moody’s Investor Service, or

an equivalent credit rating provided by an SEC-recognized NRSRO, or a proxy credit rating

determined by the Regional Director based on audited financial information (including an

income statement, balance sheet, statement of cash flows, and the auditor's certificate) greater

than or equal to either BB- from S&P Global Ratings or Ba3 from Moody’s Investor Service or

an equivalent credit rating provided by an SEC-recognized NRSRO; or

(2) If you do not meet the criteria in paragraph (1) above,

(i) Your co-lessee has an issuer credit rating or a proxy credit rating that meets the criteria set

forth in paragraph (1) above;

(ii) There are proved oil and gas reserves on the lease, as defined by the SEC at 17 CFR 210.4-

10(a)(22), the net present value of which exceeds three times the cost of the decommissioning

associated with the production of those reserves; or

(iii) A predecessor lessee liable for decommissioning any facilities on your lease has an issuer

credit rating or a proxy credit rating that meets the criteria set forth in paragraph (1) above.

However, the Regional Director may require you to provide additional security for

decommissioning obligations for which such a predecessor is not liable.

(e) You may satisfy the Regional Director’s demand for additional security by increasing the

amount of your existing bond or by providing additional bonds or other security.

(f) The Regional Director will determine the amount of additional security required to guarantee

compliance. The Regional Director will consider potential underpayment of royalty and

cumulative decommissioning obligations.

118

(g) If your cumulative potential obligations and liabilities either increase or decrease, the

Regional Director may adjust the amount of additional security required.

(1) If the Regional Director proposes an adjustment, the Regional Director will:

(i) Notify you and the surety of any proposed adjustment to the amount of security required; and

(ii) Give you an opportunity to submit written or oral comment on the adjustment.

(2) If you request a reduction of the amount of additional security required, you must submit

evidence to the Regional Director demonstrating that the projected amount of royalties due the

Government and the estimated costs of decommissioning are less than the required security

amount. If the Regional Director finds that the evidence you submit is convincing, the Regional

Director will reduce the amount of security required.

22. Amend § 556.902 by revising the section heading, paragraph (a) introductory text, and

paragraph (e)(2) to read as follows:

§ 556.902 General requirements for bonds or other security.

(a) Any bond or other security that you, as lessee, operating rights owner, grant holder, or

operator, provide under this part, or under part 550 of this chapter, must:

* * * * *

(e) * * *

(2) A pledge of Treasury securities as provided in § 556.900(f);

* * * * *

23. Revise § 556.903 to read as follows:

§ 556.903 Lapse of bond.

119

(a) If your surety becomes bankrupt, insolvent, or has its charter or license suspended or revoked,

any bond coverage from that surety must be replaced. In that event, you must notify the

Regional Director of the lapse of your bond and promptly provide a new bond or other security

in the amount required under § 556.900 and § 556.901, or § 550.166 or § 550.1011 of this

chapter.

(b) You must notify the Regional Director of any action filed alleging that you, your surety,

guarantor or financial institution are insolvent or bankrupt. You must notify the Regional

Director within 72 hours of learning of such an action. All bonds or other security must require

the surety, guarantor or financial institution to provide this information to you and directly to

BOEM.

24. Revise § 556.904 to read as follows:

§ 556.904 Decommissioning accounts.

(a) The Regional Director may authorize you to establish a decommissioning account in a

federally insured financial institution in lieu of the bond required under § 556.901(d), or

§ 550.166(d) or § 550.1011(d) of this chapter. The decommissioning account must provide that

funds may not be withdrawn without the written approval of the Regional Director.

(1) Funds in the account must be payable upon demand to BOEM if BOEM determines you have

failed to meet your decommissioning obligations.

(2) You must fully fund the account to cover all decommissioning costs pursuant to the schedule

the Regional Director prescribes.

120

(3) If you fail to make the initial payment or any scheduled payment into the decommissioning

account, you must immediately submit, and subsequently maintain, a bond or other security in an

amount equal to the remaining unsecured portion of your estimated decommissioning liability.

(b) Any interest paid on funds in a decommissioning account will be treated as other funds in the

account unless the Regional Director authorizes in writing the payment of interest to the party

who deposits the funds.

(c) The Regional Director may require you to create an overriding royalty or production payment

obligation for the benefit of an account established as security for the decommissioning of a

lease. The required obligation may be associated with oil and gas or sulfur production from a

lease other than the lease secured through the decommissioning account.

25. Revise § 556.905 to read as follows:

§ 556.905 Third-party guarantees.

(a) When the Regional Director may accept a third-party guarantee. The Regional Director may

accept a third-party guarantee instead of an additional bond or other security under § 556.901(d),

or § 550.166(d) or § 550.1011(d) of this chapter, if:

(1) The guarantor meets the criteria in paragraph (c) of this section; and

(2) The guarantor submits a third-party guarantee agreement containing each of the provisions in

paragraph (d) of this section.

(b) What to do if your guarantor becomes unqualified. If, during the life of your third-party

guarantee, your guarantor no longer meets the criteria of paragraph (c) of this section, you must:

(1) Notify the Regional Director immediately; and

121

(2) Immediately submit, and subsequently maintain, a bond or other security covering those

obligations previously secured by the third-party guarantee.

(c) Criteria for acceptable guarantees. The Regional Director will accept your third-party

guarantee if the guarantor has an issuer credit rating or a proxy credit rating that meets the

criteria in § 556.901(d)(1).

(d) Provisions required in all third-party guarantees. Your third-party guarantee must contain

each of the following provisions:

(1) If you fail to comply with the terms of any lease or grant covered by the guarantee, or any

applicable regulation, your guarantor must either:

(i) Take corrective action that complies with the terms of such lease or grant, or any applicable

regulation, to the extent covered by the guarantee; or,

(ii) Be liable under the third-party guarantee agreement, to the extent covered by the guarantee,

to provide, within 7 calendar days, sufficient funds for the Regional Director to complete such

corrective action.

(2) If your guarantor wishes to terminate the period of liability under its guarantee, it must:

(i) Notify you and the Regional Director at least 90 days before the proposed termination date;

(ii) Obtain the Regional Director’s approval for the termination of the period of liability for all or

a specified portion of the guarantee; and

(iii) Remain liable for all work and workmanship performed during the period that the guarantee

is in effect.

122

(3) You must provide acceptable replacement security before the termination of the period of

liability under your third-party guarantee.

(4) If you or your guarantor request BOEM to cancel your third-party guarantee, BOEM will

cancel the guarantee under the same terms and conditions provided for cancellation of additional

bonds and return of pledged security in § 556.906(d)(2) and § 556.906(e).

(5) The guarantor must submit a third-party guarantee agreement that meets the following

criteria:

(i) The third-party guarantee agreement must be executed by your guarantor and all persons and

parties bound by the agreement.

(ii) The third-party guarantee agreement must bind, jointly and severally, each person and party

executing the agreement.

(iii) When your guarantor is a corporate entity, two corporate officers who are authorized to bind

the corporation must sign the third-party guarantee agreement.

(6) Your guarantor and the other corporate entities bound by the third-party guarantee agreement

must provide the Regional Director copies of:

(i) The authorization of the signatory corporate officials to bind their respective corporations;

(ii) An affidavit certifying that the agreement is valid under all applicable laws; and

(iii) Each corporation's corporate authorization to execute the third-party guarantee agreement.

(7) If your third-party guarantor or another party bound by the third-party guarantee agreement is

a partnership, joint venture, or syndicate, the third-party guarantee agreement must:

123

(i) Bind each partner or party who has a beneficial interest in your guarantor; and

(ii) Provide that, upon demand by the Regional Director under your third-party guarantee, each

partner is jointly and severally liable for those obligations secured by the guarantee.

(8) When forfeiture is called for under § 556.907, the third-party guarantee agreement must

provide that your guarantor will either:

(i) Bring your lease or grant into compliance; or

(ii) Provide sufficient funds within 7 calendar days, to the extent covered by the guarantee, to

permit the Regional Director to complete corrective action.

(9) The third-party guarantee agreement must contain a confession of judgment. It must provide

that, if the Regional Director determines that you are in default of the lease or grant covered by

the guarantee or any regulation applicable to such lease or grant, the guarantor:

(i) Will not challenge the determination; and

(ii) Will remedy the default to the extent covered by the guarantee.

(10) Each third-party guarantee agreement is deemed to contain all terms and conditions

contained in this paragraph (d), even if the guarantor has omitted these terms in the third-party

guarantee agreement.

26. Amend § 556.906 by revising paragraphs (b)(1) through (3), and paragraphs (d) and (e) to

read as follows:

§ 556.906 Termination of the period of liability and cancellation of a bond.

* * * * *

(b) * * *

124

(1) The new bond is equal to or greater than the bond that was cancelled, or you provide an

alternative form of security, and the Regional Director determines that the alternative form of

security provides a level of security equal to or greater than that provided by the bond that was

cancelled;

(2) For a base bond submitted under § 556.900(a) or § 556.901(a) or (b), or § 550.166(a) or

§ 550.1011(a) of this chapter, the surety issuing the new bond agrees to assume all outstanding

obligations that accrued during the period of liability that was terminated; and

(3) For additional bonds submitted under § 556.901(d), or § 550.166(d) or § 550.1011(d) of this

chapter, the surety issuing the new additional bond agrees to assume that portion of the

outstanding obligations that accrued during the period of liability that was terminated and that

the Regional Director determines may exceed the coverage of the base bond, and of which the

Regional Director notifies the surety providing the new additional bond.

* * * * *

(d) BOEM will cancel the bond for your lease or grant, the surety that issued the bond will

continue to be responsible, and the Regional Director may return any pledged security, as shown

in the following table:

For the following

Your bond will be reduced or cancelled or your pledged

security will be returned

(1) Base bonds submitted under

§ 556.900(a) or § 556.901(a) or (b),

Seven years after the lease or grant expires or is

terminated, six years after the Regional Director

determines that you have completed all bonded obligations,

125

or § 550.166(a) or § 550.1011(a) of

this chapter.

or at the conclusion of any appeals or litigation related to

your bonded obligations, whichever is the latest. The

Regional Director will reduce the amount of your bond or

return a portion of your security if the Regional Director

determines that you need less than the full amount of the

base bond to meet any potential obligations.

(2) Additional bonds submitted

under § 556.901(d), or § 550.166(d)

or § 550.1011(d) of this chapter.

(i) When the lease or grant expires or is terminated and the

Regional Director determines you have met your bonded

obligations, unless the Regional Director:

(A) Determines that the future potential liability resulting

from any undetected problem is greater than the amount of

the base bond; and (B) Notifies the provider of the bond

that the Regional Director will wait seven years before

canceling all or a part of the additional bond (or longer

period as necessary to complete any appeals or judicial

litigation related to your bonded obligations).

(ii) At any time when:

(A) BOEM has determined, using the criteria set forth in

§ 556.901(d), or 550.166(d) or § 550.1011(d) of this

chapter, as applicable, that you no longer need to provide

the additional bond for your lease, right-of-use and

easement grant, or pipeline right-of-way grant.

126

(B) The operations for which the bond was provided

ceased prior to accrual of any decommissioning obligation;

or

(C) Cancellation of the bond is appropriate because, under

the regulations, BOEM determines such bond never should

have been required.

(e) For all bonds, the Regional Director may reinstate your bond as if no cancellation had

occurred if:

(1) A person makes a payment under the lease, right-of-use and easement grant, or pipeline right-

of-way grant, and the payment is rescinded or must be repaid by the recipient because the person

making the payment is insolvent, bankrupt, subject to reorganization, or placed in receivership;

or

(2) The responsible party represents to BOEM that it has discharged its obligations under the

lease, right-of-use and easement grant, or pipeline right-of-way grant and the representation was

materially false when the bond was cancelled.

27. Amend § 556.907 by:

a. revising the section heading;

b. revising paragraph (a)(1);

c. revising paragraph (b);

d. revising paragraph (c)(1);

e. revising paragraph (c)(1)(ii);

127

f. revising paragraphs (c)(2)(i) through (iii);

g. revising paragraph (d);

h. revising paragraph (e)(2);

i. revising paragraphs (f)(1) and (2); and

j. revising paragraph (g) to read as follows:

§ 556.907 Forfeiture of bonds or other securities.

* * * * *

(a) * * *

(1) You (the party who provided the bond or other security) refuse, or the Regional Director

determines that you are unable, to comply with any term or condition of your lease, right-of-use

and easement grant, pipeline right-of-way grant, or any applicable regulation; or

* * * * *

(b) The Regional Director may pursue forfeiture of your bond or other security without first

making demands for performance against any lessee, operating rights owner, grant holder, or

other person authorized to perform lease or grant obligations.

(c) * * *

(1) Notify you, your surety, guarantor, or financial institution holding your decommissioning

account, of a determination to call for forfeiture of the bond, security, guarantee, or funds.

(i) * * *

(ii) The Regional Director will determine the amount to be forfeited based upon an estimate of

the total cost of corrective action to bring your lease or grant into compliance.

(2) * * *

128

(i) You agree to and demonstrate that you will bring your lease or grant into compliance within

the timeframe that the Regional Director prescribes;

(ii) Your third-party guarantor agrees to and demonstrates that it will complete the corrective

action to bring your lease or grant into compliance within the timeframe that the Regional

Director prescribes, even if the cost of compliance exceeds the limit of the guarantee; or

(iii) Your surety agrees to and demonstrates that it will bring your lease or grant into compliance

within the timeframe that the Regional Director prescribes, even if the cost of compliance

exceeds the face amount of the bond or other surety instrument.

(d) If the Regional Director finds you are in default, he/she may cause the forfeiture of any bonds

and other security provided to ensure your compliance with the terms and conditions of your

lease or grant and the regulations in this chapter and 30 CFR chapters II and XII.

(e) * * *

(2) Use the funds collected to bring your lease or grant into compliance and to correct any

default.

(f) * * *

(1) Take or direct action to obtain full compliance with your lease or grant and the regulations in

this chapter; and

(2) Recover from you, any co-lessee, operating rights owner, grant holder or, to the extent

covered by the guarantee, any third-party guarantor responsible under this subpart, all costs in

excess of the amount the Regional Director collects under your forfeited bond and other security.

129

(g) If the amount that the Regional Director collects under your forfeited bond and other security

exceeds the costs of taking the corrective actions required to obtain full compliance with the

terms and conditions of your lease or grant and the regulations in this chapter and 30 CFR

chapters II and XII, the Regional Director will return the excess funds to the party from whom

they were collected.